Happy New Year!
We will take the first 10 weeks of the year to dive into our 2024 trends. We want to provide you with as much context to determine where to focus the efforts of your business. Everyone has a limited amount of resources and dollars so it is important to consider the best return for your investments.
1. The conversation about food inflation will continue
Our first trend should come as no surprise to anyone in our industry. Food inflation was in the news a lot last year. Although the worst of it appears to be over the hang over effect will continue. Even at our New Year’s Eve gathering with 6 people, it was a topic of conversation. I would tell you from my days at Loblaw where we spent considerable time trying to understand consumer’s depth of knowledge about pricing, they don’t really know the facts. What they do know is what they think. When they are constantly reminded in the media or at a gathering of 6 people on New Year’s Eve it impacts their perception.
As we enter 2024, food inflation seems to have peaked in many categories, but it is still above many other sectors. Food and beverage are purchases consumers make every week. The noise and retail prices will impact buying decisions at the shelf. In the 4th quarter we shared some facts about food inflation and we will provide an update here so you do know what is happening.
This is year over year inflation for food purchased from stores.
You can see food inflation in Canada has been coming down throughout 2023. The most recent month reported by Statistics Canada is November at 4.7%. The same basket of goods cost 4.7% more in November 2023, than it did in the same month last year. I would expect most consumers would tell you grocery store prices are up a lot more than 4.7% year over year. What they are feeling is the impact of the November 2022 number which was 11.4% compared to the previous year. When you start adding them up (2021 to 2023) you can see why people are talking about it.
No doubt prices are up but not as much as people believe. It also depends on the products you buy. Statistics Canada use a basket of goods to measure year over food inflation.
Where suppliers need to focus their attention is on the individual category numbers published by Statistics Canada. This is where retailers will be focused. If you are selling product in a category, or have ingredients from a category, where the inflation has dropped or even moved to negative territory (it does happen!) you need to be aware. That is where the trust in your relationship with your customers can erode. It also reinforces the need to stay on top of your pricing. If you do not ask or petition them for the increase when the facts are supporting the move, you will have a much harder time convincing them it is warranted.
There are many more details on the Statistics Canada website in terms of items and categories. If you do not have time to track this, perhaps someone on your team can find the numbers for you.
Changes in consumer behaviour will continue
As we have discussed, there is so much talk about this issue people are walking into the store thinking ‘what can I find that will allow me to spend less?’ or ‘are there things I can substitute to save some money?’ Consumers will continue to trade down and perhaps shift to private label.
You need to give them a compelling reason to buy if you are not a value-based brand. That means look at your marketing to ensure you are not just talking about your product. Focus on the benefits to ensure the consumer sees the value in buying your product. Think of it from the perspective they are looking to save or not spend as much. Are there reasons to buy your product that resonate with someone trying to save or spend less? Perhaps they can get two meals out of it or instead of eating out, which costs more, they can get restaurant quality at home. If they have given up other indulgences or premium items your product might just be the one. Now is the time to give them a reason to buy, not to cut back on the sales and marketing.
Have you done enough?
If processors haven’t embarked on a continuous improvement journey to reduce costs, this is the time to get started. You know your business better than anyone. Take an honest look at it. Perhaps there are some opportunities to improve efficiencies or productivity. Retailers are more open to discussions about doing things differently if it means no change to the retail price.
If you find it difficult to be objective about the business, find someone who can give you an honest opinion. Often, we are so close to it we don’t see the opportunities to improve or the change that is required.
Are you measuring the right metrics in your business to ensure you can manage for the change you need? Often, we see people doing it one way because that is how they have always done it. They also do not consider how many units the equipment could produce at optimal operating standards. We look at history but that does not indicate what the potential is.
Improvements in your processes and reduced cost per unit can allow you to keep a cost steady, which is a huge win in your customer’s eyes. Leverage the win if you are able to!
We intend to keep the conversation positive
Unfortunately, the politicians continue to focus their attention on the retailers as the cause of food inflation. This will result in retailers putting pressure on suppliers for a lower or more stable cost of goods. It also fans the flames of consumer behaviour.
We believe they should focus the conversation on the entire value chain and figure out how we can make it better. We need to keep the cost of food affordable but also maintain a sustainable and viable industry. We need more food produced in this country, not less.
The conversation about inflation is not going away. Suppliers need to be ready to be challenged about their cost (again). If a cost increase was tough last year, it might be even tougher next year.
We are sharing our trends for 2024 but it is always beneficial to consider other sources. The following list are more consumer focused which should be helpful. Our SKUFood trends are developed specifically for producers and processors but helpful to everyone in the value chain.
Whole Foods Market
Every year Whole Foods Market publish their top trends. These are often the leading edge of change. They use their own sales data and store experience which are certainly only one segment of the market.
We do see many trends start in this group of consumers who can be early adopters and if the volume grows the products become more widely distributed. One feature we do like is they list products from their stores (not always available in Canada) that are examples of the trend.
As an established full-service marketing agency, based in Toronto, Nourish Marketing are in a great position to share their perspective of where our industry is going. They have a good section on AI and we agree plant based foods need to be a better eating experience.
The Hartman Group are a food focused research and consulting business based in Seattle. They produce a considerable amount of content about our industry with a lot of quantitative analysis to support their views. Some interesting perspectives on consumer behaviour for 2024.