Never let the facts get in the way of a good story. The old journalistic adage has never been so true. Despite evidence that food prices stopped rising in March for the first time in six months ('Retailers put a lid on it', The Grocer pp 4-5, 12 April), the nationals continued to go to town this week on what the Daily Mail described as the "fastest rise in cost of food for 17 years".
But the rising tide of inflation may not be as inexorable as such headlines suggest. Richard Dodd, head of media at the British Retail Consortium, believes the slowdown noted in The Grocer Price Index data last week may be a truer indication of what's to come. "Contrary to recent scare stories, food inflation is not at a historical high and is similar to the level it was 12 months ago," he says. "We think inflation will continue to slow."
Despite soaring commodity costs, retailers are managing to keep a lid on inflation, according to Dodd. In some cases, they are even paying suppliers more for the goods than they are then charging consumers, particularly in bakery and dairy, he claims.
"Retailers are paying higher costs at the farmgate but are not passing these higher prices on to the shelves," he says.
Manufacturers who complain they're being forced to swallow the costs might not like it, but the ongoing supermarket price wars have also helped rein in inflation. Promotional activity is on the increase with 27.9% of all food sales supported by promotions in March compared with 25.9% last March [Nielsen].
According to Mike Watkins, senior manager of retailer services at Nielsen, retailers are using promotions to try and close the gap on Morrisons, which grew its market share by 11% in the first quarter of 2008.
"Retailers are playing catch-up to Morrisons and shoppers are seeing the benefits," he says. "However, March was busy with promotions such as Easter so April and May will be slower months for consumer spending and a good indicator of things to come."
There are also signs that last year's disastrous wheat harvest, arguably the biggest single factor behind the recent food inflation, was a one off. Last year, the hottest April since records began, wheat plantings were left parched of water smack bang in the middle of the growing season. The summer flooding that followed devastated crops across the UK, Europe and North America, sending food prices soaring - wheat is currently 130% more expensive than it was 12 months ago.
"The main risk for food producers would have been another dangerously dry April," says Alastair Dickie, director of crop marketing at the Home Grown Cereals Authority. "But since Easter we have had the perfect conditions for crop planting."
Wheat plantings are up 8% on 2007, which should result in a 16 million tonne crop compared with 13.3 million tonnes last year. "This means manufacturers shouldn't be scrabbling for availability," says Dickie. "The recent levelling of inflation should continue over the next couple of months."
There are caveats. Thanks to a rampant Chinese economy, the average Chinese person can afford to eat 150% more meat than they did in 1985, putting pressure on supplies of cereals for animal feed. Rising demand in Asia for dairy products is also putting strain on global cereal stocks.
It will be tough for UK retailers to replicate their March success in shielding shoppers from the consequences of world trends. But, with market share at stake, you can bet they'll do their best.n