LONDON—Unless the cost of goods drops or the shift to cheaper store-branded products accelerates, shoppers around the world will see more shoppers this year than they did in 2022, retailers, consumer goods companies and investors say. I will buy groceries.
Retailers and consumer goods makers have been stuck in tough price negotiations for more than a year as friction began in 2021 over a COVID-related chain impasse.
This then escalated into a fight over the high cost of raw materials and energy in the wake of the Ukrainian war, exacerbating Europe’s cost of living crisis by driving up prices for basic food items from bread to milk to meat. rice field.
Britons spent 16.7% more on food in the four weeks ending January 22 compared to the same period last year, according to research firm Kantar. The U.S. Food Index, which includes meals eaten at home, in cafes and restaurants, increased 10.4% in the year ended December.
Marc Schneider, CEO of Nestle, the world’s largest food group, told a German newspaper last week that food production this year would be more costly to offset high production costs that have not yet been fully passed on to consumers. He said the price needed to be raised further.
“Investors will pay a premium to companies that demonstrate portfolio pricing power without adversely affecting volume or market share,” said Jack Martin, fund manager at Oberon Investments.
Profit margins at packaged goods giants have been squeezed by more than a year of rising input costs as prices for raw materials such as wheat and sunflower oil have skyrocketed since the war began in Ukraine in February. rice field.
Unilever, which is due to report full-year results on Thursday, said in October that underlying price growth, a price indicator, rose to a record 12.5% in the third quarter. Nestlé and dairy giant Danone are expected to report results later this month.
Tineke Flicky, portfolio manager at Waverton Investment Management, expects Unilever to raise prices, albeit selectively, in 2023.
“The last time we heard from Unilever, it became clear that they prefer to sell fewer products at a higher price in order to keep their prices lower than their peers and gain market share,” said Flicky. said.
Bernstein analyst Bruno Montein said consumer-goods makers will continue to raise prices until they return to profitability.
“The only thing that can stop this is…consumers are starting to trade in private label products at a faster pace…(and) if commodities continue to fall, further price increases may not be necessary. I can’t.”
In December, the CEO of Walmart, the world’s largest retailer, warned that “some packaged goods suppliers are pointing to further inflation next year, in addition to mid-double digits this year.” .
“Dry food groceries and consumables are inflating in double-digit to mid-double digits and we feel stubborn,” said Doug McMillon, adding that suppliers are “long-term with us.” He added that he was encouraged to focus on
European retailers have also rallied.
“We insist on long-term contracts with big suppliers that do not need to be renegotiated,” Colruyt, a Belgian discount retailer, told Reuters.
Britain’s biggest supermarket group Tesco and Kraft Heinz failed to agree on prices for some brands last year, causing several products to disappear from shelves. This month, Unilever’s Hellmann’s mayonnaise was discontinued in South African stores due to rising costs.
Tesco Chief Executive Ken Murphy said last month that he expects inflation to peak by mid-2023 and then begin to decline.
Barclays analyst Warren Ackerman said food prices have fallen an average of 20% from their March peak, but it will take time for this to be reflected in companies’ costs.