The sharp increase in prices of food in 2022 is directly linked to rises in costs of commodities, labour, energy and transportation. Consumers are reacting to inflation according to their income level, price sensitivity and brand loyalty. Responses include changing to private label or cheaper brands, and buying at discounters. Companies are responding to rising costs by cutting margins, reducing pack sizes, replacing ingredients and launching new brands at lower price points.
This report comes in PPT.
The strong increase in prices of packaged food and fresh food is directly linked to a rise in costs of production, including raw materials, commodities, labour, energy and transportation. While the pandemic and Russia’s invasion of Ukraine have been the major factors inflating global food prices, bad weather conditions and export restrictions are also contributing to higher price pressure globally, particularly affecting the Middle East and Africa, and Eastern Europe.
Consumers reactions to inflation differ depending on income level, price sensitivity and brand loyalty. The responses of those more affected include changing to private label or cheaper brands, looking for discounts or buying in discounters. Other consumers prefer to stick to their preferred brands, but are diminishing the frequency or the pack size of their purchases.
The paths taken by companies to respond to rising cost include absorbing higher costs and lowering margins, reducing pack sizes (typical in snacks), changing the type of packaging (such as stand-up pouches in dairy), replacing the ingredients (such as sunflower oil in potato crisps/chips), rationalising SKUs and launching new brands at lower price points (frequent in dairy). Those that can pass higher costs onto consumers are typically in premium segments, or otherwise must add value to the offering to persuade consumers to pay a higher price.
Although global inflation is expected to moderate in 2023 compared to 2022, there are risk factors that could keep costs (and prices) high, including the prolongation of the war between Russia and Ukraine, extreme weather conditions, or new COVID-19 variants, which could increase supply chain problems and cause stock shortages of raw materials and products. Edible oils and bread are among the categories with high risks.
Fresh Food refers only to fresh uncooked and unprocessed foods (packaged and unpackaged). Packaged sugar products and natural sweeteners (e.g. brown sugar, table sugar, molasses) are also included. For Fresh Food, we research total sales across distribution channels including retail, foodservice and institutions. For a selected 18 markets, we have a breakdown of total fresh food sales according to the following formats: • Retail • Foodservice sales • Institutional sales Retail Retail sales is defined as sales through all legal establishments primarily engaged in the sale of fresh, packaged and prepared foods for home preparation and consumption. Retail sales excludes sales to hotels, restaurants, cafés, duty free sales and institutional sales (canteens, prisons/jails, hospitals, army, etc). Our retail definition excludes the purchase of food products from foodservice outlets for consumption off-premises, eg grilled chicken/meat/fish bought from counters of cafés/bars. This falls under foodservice sales. For foodservice, we capture all sales to foodservice outlets, regardless of whether the products are eventually consumed on-premise or off-premise. We estimate sales through the following channels: Modern Grocery Retailers • Supermarkets • Hypermarkets • Discounters • Convenience stores • Forecourt retailers Traditional Grocery Retailers • Independent small grocers • Food/Drink/Tobacco Specialists • Other grocery retailers (morning/speciality/open/wet/farmers’ markets, stalls and kiosks, etc) Non-grocery retailers • Health and beauty specialist retailers • Other non-grocery retailers Non-store retailers • Homeshopping • Internet retailing • Vending • Direct selling Foodservice Foodservice sales are defined as sales TO consumer foodservice outlets that serve the general public in a non-captive environment. In other words, this means that the foodservice volumes track sales of all fresh food going into restaurant kitchens, regardless of what the restaurant actually does with that food. Foodservice outlets include cafés/bars, FSR (full-service restaurants), fast food, 100% home delivery/takeaway, self-service cafeterias and street stalls/kiosks. Sales to semi-captive foodservice outlets are also included. This describes outlets located in leisure, travel and retail environments. • Retail refers to foodservice units located in retail outlets such as department stores, shopping malls, shopping centres, super/hypermarkets etc. • Leisure refers to foodservice units located in leisure establishments such as museums, health clubs, cinemas, theatres, theme parks and sports stadiums. • Travel refers to foodservice units based in airports, rail stations, coach stations, motorway service stations offering gas facilities etc. Institutional sales Institutional sales is defined as sales to captive foodservice units that serve captive populations such as in hospitals, schools, prisons, military camps, hotels, hostels, nursing homes, homes for elderly people, religious houses, etc.
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