LONDON, May 24 (Reuters Breakingviews) – Grocery stores, stifled by inflation since the pandemic, are starting to ease a little. Big food makers such as Kraft Heinz (KHC.O) and Unilever (ULVR.L) are gradually tapering off the price increases they have imposed on supermarket chains. If food retailers can convince cash-strapped customers to not skimp and pay more, profit margins will eventually start to rise.
After causing controversy in the United States, “greedflation,” in which some companies take advantage of high inflation to raise prices, has become big news in Europe. European Central Bank President Christine Lagarde recently alluded to the problem, saying some companies were boosting their profit margins due to a “mismatch between demand and supply.” France’s finance minister is also seeking ways to tackle rising food prices. Food retailers in the country last week began price negotiations with manufacturers including Coca-Cola (KO.N) and Unilever as food inflation rose to more than 15% in March.
Food inflation remains high. In the UK, it was over 19% in April, according to the Office for National Statistics. But while politicians and consumer groups – from producers of goods to manufacturers – have blamed corporations for “greedflation,” there is one clear loser in the act. It’s a grocery store. Supermarkets are feeling the pinch as customers drift to discounters such as Germany’s Lidl and Aldi. Since the pandemic, these discount chains have rapidly increased their market share across Europe, according to Kantar data.
Supermarkets are also under pressure from suppliers such as Unilever, Nestlé (NESN.S) and Kraft Heinz, which have raised prices by more than 13%. The companies argue that this is barely enough to cover rising raw material and employee costs. Their critics claim that they are “greedily inflating” their profits.
Lacking real pricing power, chains such as Walmart (WMT.N), Kroger (KR.N) and Carrefour (CARR.PA) will all suffer declining EBITDA margins in 2021-22. there is Franz Muller, CEO of Stop & Shop, said owner Ahold Delhaize (AD.AS) is urging suppliers to lower prices at a time when commodity costs are falling and inflation is slowing. calling. He has reason to hope. Unilever has raised prices by more than 10% in the first three months of the year, lower than it has pushed aggressively in previous quarters. Meanwhile, Kraft Heinz paused its price hikes in February, saying consumers were “more focused on the price tag.”
Food manufacturers can certainly do more. Margins have also been squeezed, but they operate with EBITDA margins as high as 27%, while supermarkets have to cut at around 5-8%. But even less pressure from suppliers isn’t enough to restore grocery stores’ fortunes. You need to convince your price-sensitive customers that their worst suffering is over and they can spend more on their shopping. Until that happens, grocery store margins will remain under the tight grip of inflation.
follow @aimeedonnellan on Twitter
(The author is a columnist for Reuters BREAKINGVIEWS. Opinions expressed are her own.)
contextual news
UK consumer price inflation fell to 8.7% in April from 10.1% in March, according to figures released by the Office for National Statistics on May 24. Meanwhile, the food inflation rate remained high at 19.1% in April, compared to 19.2% in March.
Finance Minister Bruno Lemaire said on May 17 that despite pressure on big food companies to cut prices, the French food industry had agreed to resume price negotiations with retailers soon. Food inflation in France has risen above 15% in recent months after food companies and retailers agreed to raise prices by an average of 10% in annual price negotiations in March, despite falling raw material prices on global markets. is soaring to
Unilever raised prices by 10.7% in the first quarter of 2023, lower than in recent quarters. Nestlé reported on April 25 that its first-quarter sales were slightly above expectations as the world’s largest packaged food company raised prices to compensate for weak sales.
Editing: Francesco Guerrera, Oliver Taslick, Pranav Kiran
Our standards: Thomson Reuters Trust Principles.
Opinions expressed are those of the author. They do not reflect the views of Reuters News as committed to honesty, independence and freedom from bias based on trust principles.