From coffee to ketchup, retailers seek price shields as inflation rears its head

LONDON/NEW YORK, May 4 (Reuters) – As shoppers pay more for everything from coffee to ketchup, some retailers have begun cutting or restricting the price of hundreds of products as they compete for customers and prepare to compete enter into negotiations with major producers of packaged food.

Eurostat said Friday that inflation for food, alcohol and tobacco in the eurozone rose 6.4% in April from last year, compared to a 5% increase in March as the rising cost of living in Europe continues. than expensive energy.

The head of Leclerc, France’s largest retailer by market share, said on Tuesday it would identify the 120 items consumers buy the most, including toilet paper, soap, rice and pasta, and create a “shield” where Leclerc would reduce the price of those. items will guarantee. from May 4 to July.

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The price increases are somewhere between 6% and 20%. Pasta, for example, is up 20%, as have some brands of coffee and chocolate, Michel-Edouard Leclerc said in an interview with French radio broadcaster franceinfo.

In March, European governments, some facing elections this year, spent tens of billions of euros to protect households from energy costs.

There’s little evidence they’ll provide similar help with food bills, which make up a smaller share of domestic spending, but politicians are nervous as household incomes are under pressure and consumer groups have warned the poorest must choose between heating their homes and doing good. food.

As nearly everyone is becoming more cautious about how much they spend, supermarkets, which have faced flat margins, are keen to avoid losing customers to the competition.

The CEO of British supermarket group Sainsbury’s told reporters last week that shoppers are “watching every penny”.

An analysis of a varied basket of goods created for Reuters by data company Nielsen shows that prices for products such as beer, bottled water and ketchup are rising sharply, in many cases even sharp increases compared to last year.

On average, European shoppers pay about 2 euros ($2.10) more for six essential food products, 8% more than last year. Retailers charged an average of 8.6% more for instant coffee in the four weeks to March 26, while the price of baby milk rose by more than 21%.

While Leclerc has promised to freeze some prices, retailers across Europe are trying to limit the inflation impact on the most essential items.

A spokesperson for the European retail and wholesale association EuroCommerce, which has more than 95 members, including Carrefour, Lidl and Marks & Spencer, said they are all looking at price caps and discounts in one form or another, although this would depend on input costs from suppliers. margins.

“Due to the highly competitive nature of the supermarket market, you will see other supermarket chains trying to keep prices as low as possible,” the spokesperson said.

In Britain, rising prices have led to the greatest pressure on household incomes since at least the 1950s, when food price inflation reached 5.2% in the four weeks to March 20, its highest level since April 2012. the sector data last month.

In response, supermarkets there, including Asda and Morrisons, have slashed the prices of essential items.

While they are cushioned after lockdowns as people eat at home and spend more on buying ingredients, analysts expect full-year margins to be flat or slightly lower at European retailers including Carrefour SA (CARR.PA), Sainsbury’s (SBRY.L), Colruyt (COLR.BR) and Ahold Delhaize (AD.AS).

They will try to recover some of the impact of price cuts in tough negotiations with the food production companies, which would normally have concluded in parts of Europe by the end of last year, but have dragged on as supply chain problems and inflation were exacerbated by Russia’s war in Ukraine has complicated agreement.

Packaged food makers such as Mondelez (MDLZ.O) and Unilever (ULVR.L) are eager to raise prices as their margins have also shrunk, while input prices have risen due to record raw material costs.

Unilever, which makes Knorr chicken stock and Hellmann’s mayonnaise, said last Thursday it raised prices in Europe by 5.4%, boosting underlying quarterly sales for the region by 0.7%.

Still, it forecasts the first half margin to be between 16%-17%, down from 18.8% last year.

“If you compare that to what’s happening to people’s energy bills, we think that’s very responsible,” CEO Alan Jope told reporters. The company warned of further price increases, saying that unless it charged more, the “full impact” of higher input costs would be a 900 basis point hit to full-year margins.

Dirk van de Put, CEO of Oreo maker Mondelez, said last week that the company was approaching retailers in Europe for another price hike, following price hikes earlier this year.

Mondelez’s first-quarter margin fell from 41% to 38.4%, the company said.

Nestle, the world’s largest food producer, said last month it expects revenue growth of about 5% this year after higher prices for pet food, dairy products and coffee. read more

As sales grow, some packaged food companies’ branded products are losing market share to lower-priced private label retailers, such as Aldi. Customers are stockpiling as the war in Ukraine increases the risk of shortages, which will also push prices up further.

“We are seeing higher sales across all of our own brands and across all categories,” Rolf Buyle, director of international purchasing at ALDI Nord, told Reuters. “Currently, we mainly have stock effects in our pantries category such as oil, pasta, rice, canned goods and flour.”

Unilever and Nestle declined to comment on this story. Mondelez did not respond to a request for comment and Leclerc could not be reached.

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Reporting by Richa Naidu; edit by Barbara Lewis

Our Standards: The Thomson Reuters Trust Principles.

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