Retailers continue to suffer as shoppers pay the price of high inflation

Global food prices look set to continue to rise in next year

Upwards cost pressures for commodities and oil continue to fuel high inflation in the food and grocery sector, according to new research from Verdict. While supermarkets are able to absorb some price increases, inflation is inevitable. Shoppers are continuing to feel squeezed, and volume growth is expected to remain worryingly low.

Expenditure Growth of 3.1% from the food & grocery sector in 2013 is commendable, particularly considering that total retail expenditure is only expected to increase 1.8% as a recovery in UK retail slowly begins to pick up pace. However, on closer inspection, the majority of the growth in Verdict’s food & grocery sector forecasts for 2013 comes from stubbornly high inflation.

“The outlook for the UK economy remains decidedly bleak, with 2013 set to be a further year of austerity, high inflation and low wage growth,” says Andrew Stevens, Retail Analyst at Verdict Research. “With this in mind, it is not surprising that volume growth in food & grocery will be just 0.2% in 2013. With increased prices instore, shoppers will have very little room to buy more as many struggle to keep up with inflation.”

Global food prices look set to continue to rise in next year. Increases in grain prices are having a knock on effect on wheat, meat and dairy, while rising fuel prices will continue to exert an upward pressure on supply chain and logistics costs.

This year the food & grocery sector has seen saw a considerable amount of publicity surrounding the price paid to dairy farmers. Exposures surrounding the difference in the cost of production, the purchase price, and the retail price leaving farmers out of pocket brought the issue of food prices to the fore.

Suppliers have long been at the mercy of larger supermarkets, which have been able to negotiate hard so as to not pass increased costs onto shoppers. However, with a heightened focus on fair payments to suppliers and increasing global food prices, even those retailers better equipped to absorb price rises into margins will struggle not to pass inflation onto shoppers.

“Not only will 2013 be a difficult year for suppliers, retailers and consumers will continue to feel increased inflationary pressures, and with the global food supply set to remain volatile, we expect this to continue in the future,” says Stevens.