Suppliers of grocery products have seen their manufacturing costs jump by anything up to 5% in the past six months, but almost half have not yet been able to pass on these rises to their customers.
The latest survey of top executives on our suppliers’ reader panel reveals that 76% of them have seen their costs rise due to the higher cost of utilities, transportation, packaging and staff wages, while some felt costs had soared by as much as 10%. Others warned that costs would continue to rise.
However, our survey shows that it is proving difficult for many to pass on these extra costs, with 58% of our panel saying they were now definitely trapped in a deflationary market.
Almost half (47%) said they had managed to pass on some
of their higher costs, while a similar proportion hadn’t yet been able to follow suit. Just 2% said they had managed to pass on all of their increased costs.
The views are backed by the results of The Grocer’s latest Price Index (The Grocer, August 13, p4) - which showed that grocery prices were down by 0.5% year-on-year, despite rising 0.4% between July and August.
One supplier told us: “The situation in our sector is best described as the economics of the madhouse. Costs have been driven up by 5% each year for the past two to three years. Yet we have been unable to pass on these increases. To make matters worse, price matching by retailers - who demand their margins are maintained - has resulted in price deflation of 5% to 6% a year. The result is eroded profitability and the medium-term threat of suppliers exiting the market.”
Another said: “The only way we seem able to secure price increases is by launching new products with higher rsps. Securing increases in existing lines is still very difficult. Retailers are happy to take a price increase, but are not prepared to reduce margins and will not be first to move retail pricing.”
One supplier disagreed - to a point. “After years of deflationary pressure, it appears that retail selling prices are moving up,” he said. “But the retail battle will not go away. And with Sainsbury recovering, the pricing pressure will, if anything, get worse.”
Julian Hunt