What rising inflation means for the fine food industry

Over October, annual grocery price inflation reached 2.1%, the highest in 14 months, according to analysts at Kantar. “Grocery prices are rising, and this month inflation hit its highest rate since August 2020,” said Fraser McKevitt, Kantar’s head of retail and consumer insight. 

Savoury snacks and soft drinks saw the fastest price rises, while prices for fresh bacon and vegetables fell.

Attracting shoppers amid rising inflation

With the cost of living rising by 4.2% in the 12 months to October, the highest rate in almost a decade according to the Office for National Statistics, this could lead to more value shopping, Fraser said – although he added that with Christmas shopping in full swing, food price inflation “hasn’t dampened spirits yet”.

“As prices increase in certain categories, we can expect shoppers to continue to visit several supermarkets and shop around to find the best deals. Already, households visit an average of 3.3 supermarkets per month in order to find the best value for money,” he said.

However, IGD’s research shows that consumer confidence is indeed being hit by rising prices. “IGD’s Shopper Confidence Index reached one of its lowest levels (-11) in October,” said Susan Barratt, CEO of IGD. “Our ShopperVista research reveals 28% of shoppers now expect food to get much more expensive in the year ahead, the highest level recorded, with increasing numbers signalling that rising food, energy and petrol prices are having an impact.”

In light of these predictions, the fine food sector may be fearing the worst. But Susan added that not all shoppers are driven by prices alone. “Shoppers are torn in different directions. Some 40% stated that environmental impact was important when food shopping, up from 36% in September ’21,” she said. Helping shoppers navigate food and drink options with impressive eco credentials could help independent retailers rise to the occasion.

What’s more, the strong demand for supporting local shops and producers that offer more ethical products which align with conscious consumers’ values presents a clear niche for fine food retailers to cover.

“High inflation isn’t anything new to our business, as we have been seeing inflation since the summer,” explained Andy Milner, procurement and supply chain director at WSH, a hospitality business with brands including BaxterStorey, the UK’s largest independent food service provider.

“What’s important to keep in mind is that consumer price index is measured across a wide range of products and services and whilst food and drink has largely been suppressed within this basket of goods, this has been largely down to pricing policies of retailers and not necessarily a reflection of the true movement in the marketplace,” he told Speciality Food.

Andy expects inflation to remain high over the coming months and into 2022. “Commodity markets are at an all-time high and whilst this doesn’t impact us directly and immediately, it does and will continue to filter through into our and our suppliers’ supply chains in time.”

Businesses face increased costs

Thanks to these rising costs, business confidence has taken a knock. The Federation of Small Business (FSB)’s Small Business Index revealed that small business confidence, which surged at the beginning of the year, “has run out of steam”. FSB national chairman Mike Cherry said, “The tax rises will be hitting at the same time as a rise in the living wage, and against a backdrop of surging inflation and supply chain disruption.”

Indeed, around three-quarters of Scottish small businesses said the cost of running their business had increased since the same time last year. David Equi, managing director of Equi’s Ice Cream, said, “We’re a growing business, despite being in operation for almost a century, with bold plans to invest in our operations and improve our efficiency. But I was shocked when I went to market and no energy supplier would quote me less than five times my current bill.”

A survey by the British Chambers of Commerce (BCC) revealed that four out of five businesses had increased the price of their goods or services over the past year. The proportion rose to 92% for manufacturers. “Since June of this year we, and other businesses like us, have been heavily impacted by so many factors that take constant and daily fire-fighting and with no end in sight,” one commercial director of a South West food and drink manufacturer said. “Commodity supplies are not only hard to get hold of, with ever-extending almost unworkable lead-times, but are increasing in price on an almost daily basis, with some as high as 58% since the start of the summer.” 

This, plus increased logistics and labour costs, has led some producers to delist or cap lines they typically sell.

Shevaun Haviland, director general of the British Chambers of Commerce, said Government support is needed. “While there are some global issues at play, there are levers that the Government can pull to improve current business conditions, for example, the introduction of an energy price cap for SMEs and providing more temporary visas in the hardest hit sectors through expansion of the Shortage Occupation List,” she said.

The backdrop of rising costs will prove to be a challenge for all businesses, but by showcasing their unique credentials, fine food independents can continue to attract customers.