Food inflation and the parallel universe of supermarket buyers: The FM Business Leaders’ Round Table Debate
Much of the discussion at yesterday's debate - hosted by Eversheds at its London HQ - focused on how to square the circle of commodity price hikes with the supermarkets’ desire to keep a lid on inflation and retain consumer confidence as household budgets are squeezed by the VAT rise and fuel price hikes.
Elizabeth Shaw boss Malachy McReynolds said: “A massive amount of spending power is being taken out of the economy and I think we will all suffer.”
The debate – which comes a week after Sainsbury’s boss Justin King told journalists that suppliers would have to "work very hard" to justify price increases – revealed high levels of frustration amongst manufacturers over the inflexible stance of some customers.
Detached from reality
One chief executive of a leading privately-owned food manufacturer sitting around the table said supermarket buyers appeared to be in denial on the issue of commodity price increases, adding: “They seem quite detached from reality, denying it, making life as difficult as possible and putting as many hurdles in our way as they can.”
Another chief executive in the chilled food arena also highlighted challenges his company had faced in recent months: “It's disappointing that despite a huge amount of investment in people, wonderful new products and new kit, when it comes down to pricing increases, the discussions [with retail customers] become very base and unproductive.”
The ‘I don’t want to hear it’ approach
The finance director of one firm at the debate said some buyers that had accepted commodity-driven price increases in 2007 were unwilling to budge this time round.
“Back then, there was an initial reaction by the retailers where they said ‘no, go away’, but then actually, once you sat down with them they accepted the fundamentals. But more recently, there has been a ‘I don’t want to hear it’ approach.”
A permanent increase in the base price of commodities?
Zetar boss Ian Blackburn said there were two phases to commodity cost inflation. “First, you’ve got the normal commercial cycle, which we had last year, but what I think we've had from the back end of 2010 and going forward is adjusting to a permanent increase in the base price of commodities.
"We're now entering the phase when we're trying to get our fourth, fifth or sixth price increase from customers at a time when they are struggling to get any volume increases.
"In cocoa I think we found the new base last summer, but on the other commodities I still don't think we've found the base yet."
Holding off for as long as possible
Some of the smaller firms at the debate - which was sponsored by Eversheds, lean consultancy KM&T and foreign exchange specialist World First - said that they had held off for as long as possible on passing on price increases to customers but could not absorb costs indefinitely.
Zoeb Bhujwalla, boss at London-based baker American Muffin Co, said significant price hikes in starches, chocolate, sugar and oils could not be offset through greater efficiencies: “It is imperative that we secure a price increase from customers, but as a small company it’s very hard.”
Their comments came as grocery think-tank IGD released research revealing that 88% of UK shoppers expected food prices to increase in the next 12 months.
* For more editorial coverage of the round table debate, which was chaired by Big Bear director Paul Wilkinson and brought together more than 20 chief executives and mds from UK food and drink manufacturers, see the February issue of Food Manufacture magazine.
