As inflation bites…grocery retail

Looking at the regional food retail landscape, one can’t ignore the fundamental that has caused tectonic shifts in the food system – inflation and its repercussions on consumer behaviour, brand offerings and retail response, observed Somaia Basha, Research Manager – Middle East, Euromonitor International.

The significant growth in packaged food and fresh food prices is directly related to rising production costs, which include raw materials, commodities, labour, energy and transportation. While the pandemic and the political situation in Russia and Ukraine have been catalysts for rising global food prices, adverse weather conditions and export limitations are also contributing to higher price pressure globally, also impacting the Middle East, Africa and Eastern Europe in particular.

Various factors including disposable income, price sensitivity and brand loyalty influence how consumers respond to inflation. Those most adversely affected have responded by switching to store brands or private labels, searching for discounts and shopping at budget stores.

However, there is still a section of consumers loyal to their tried-and-tested brands, albeit purchasing them less frequently or in smaller quantities, Basha shared. Thus, private label goods and discounters are expected to gain market share from higher-priced competitors as a result of trading down.

Companies are also feeling the heat as retail prices reflect high production and operating costs. To combat rising commodity costs, businesses are experimenting with new raw material sources and product formulations.

Shrinking profit margins are forcing some brands out of business. In such a situation, measures being undertaken by businesses include SKU rationalisation, new pricing strategies, reorganised investments and supply chain optimisation in response to shifting consumer preferences.

Among other things consumers can also be retained by the introduction of a rewards programme or the extension of existing perks to include access to limited time offers.

However, risk factors such as a continuation of the war between Russia and Ukraine, unpredictable weather conditions or new COVID-19 variants could increase supply chain pressures causing stock shortages of raw materials and products. In turn it could lead high costs and prices in 2023 despite expectations that global inflation will moderate compared to 2022. Two categories with particularly significant risk are food oils and baked goods such as bread, Basha concluded.