Grocery prices will increase due to higher production costs
Retailers, FMCG companies and investors said shoppers around the world will pay more for groceries this year than they did in 2022, unless prices go down. commodity costs basic or switch to cheaper brands.
Retailers and FMCG producers have been stuck in tough price negotiations for more than a year now, with the crisis starting in 2021 due to supply chain bottlenecks related to COVID-19.
And the crisis was exacerbated by the high cost of raw materials and energy in the wake of the Russian invasion of Ukraine, as the rise in the prices of basic foodstuffs from bread to milk and meat exacerbated the cost of living crisis in Europe.
Britons paid a record 16.7% more for food in the four weeks to January 22 than in the same period last year, according to the research firm. KantarThe US food index, including meals eaten at home and in cafes and restaurants, rose 10.4% for the year ending in December.
Mark Schneider, chief executive of the world’s largest food group, Nestle, told a German newspaper last week that it would have to raise the prices of its food products more this year to make up for higher production costs that it has not fully passed on to consumers.
“Investors will be attracted to companies that show pricing power without negatively impacting market share,” said Jack Martin, fund manager at Oberon Investments.
Profit margins for large packaged goods companies have been squeezed by higher input costs for more than a year as prices for ingredients such as wheat and sunflower oil have soared since the Ukraine war broke out in February.
Unilever said in October that core price growth — an indicator of pricing — rose to a record 12.5% in the third quarter.
Tinky Freaky, a principal at Waverton Investment Management, expects Unilever to raise prices in 2023, albeit selectively.
“The last time we heard from Unilever, it was made clear that they would prefer to sell fewer products at higher prices, to keep prices lower than their peers and to gain market share,” Fricke said.
consumers act
Consumer goods manufacturers will continue to raise prices until they regain their profitability, said Bruno Montaigne, an analyst at Bernstein.
He added, “The only thing that can stop this is … that consumers start turning to private label products at a faster pace, so if sales of goods fall, there may not be a need for further price increases.”
price increase
In December, the CEO of Walmart, the world’s largest retailer, warned that “some suppliers of packaged goods are still telling us more inflation next year than this year”.
“Dry groceries and consumables have mid- to double-digit inflation which makes us feel like we’re doing long-term deals,” said Doug McMillon.
“With major suppliers, we insist on long-term contracts that do not have to be renegotiated,” Belgian retailer Colroyt told Reuters.
Britain’s biggest supermarket groups Tesco and Kraft Heinz were unable last year to agree on prices for some brands, which led to many products disappearing from shelves.
This month, Unilever’s Hellmann’s mayonnaise was discontinued in South African stores due to cost inflation.
Ken Murphy, chief executive of Tesco, said last month he hoped inflation would peak by mid-2023 and then start to abate.
Barclays analyst Warren Ackerman said that although food commodity prices are down on average 20% from their March peak, it will take time for this to be reflected in corporate costs.
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