1. Focus on food and beverage prices
Our perspective is you need to understand consumers and customers if you want to be successful in the food and beverage industry. Our annual trends are created based on exposure to both key stakeholders. At SKUFood we support you to get your products on the shelf and into the shopping cart.
Over the next 10 weeks we will cover one of our trends each week. We want to explore them in more detail and give you some options, understand the impact, provide ideas ideas and strategies you can implement in your business. Our first trend is not new. You need to continue to focus on pricing.
Pricing is still top of mind
Food inflation continues to make the news. Despite a return to more acceptable levels, consumers, customers, the media and others will continue their focus on food and beverage inflation. As you can see in the following chart from Statistics Canada, the consumer price index of food purchased from stores out-paced the all-items index. There was a reprieve in early 2024, but it has started to creep up again at the end of 2024.
We know consumers read about big increases in chocolate and other categories. They are still very focused on prices when they buy their groceries.
It is true, prices have increased, in some categories close to 20%. These prices are now incorporated into supplier’s and retailer’s results. They are not going to go back.
What customers will do
There is no doubt retailers will push back on any cost increases. This is not new and they continue to watch ingredient prices, logistics costs and packaging costs carefully. As we have said in the past:
- Make sure you have your facts about your cost of goods,
- Find any opportunities you can to offset cost increases with efficiencies or other opportunities,
- Propose changes to logistics that will offset an increase in your cost of goods,
- Watch your category closely, especially private label. If the retail for large national brands increases and private label increases it is likely the retailer has accepted it has to go up,
- Be proactive and do not hope the prices will come back down. It is never enjoyable to propose cost increases, but you must be selling your product for a price that is fair to you
Retailers are looking for efficiencies in their business too. Often, this can be achieved by reducing the number of items they carry. It is more efficient to operate a category with 5 SKUS than 10 SKUS. It will free up valuable space in the warehouse, turn inventory faster and reduce work to manage pricing, listings, promotion activity etc.
Retailers continue to convert more stores to discount formats. We will cover this in detail in a few weeks. If one or more of your customers are doing this you need to understand if your items will be on the shelf in the new format. They will not keep them just because they were there before. For example, if Sobeys converts a Sobeys or Safeway store to FreshCo the listing base will change. If your items are not in the FreshCo listings you will lose sales.
Your customers will probably implement more programs to reinforce temporary price reduction (TPR) programs. Our local Loblaw stores have redesigned the flyer and in store signage to communicate price.
What consumers will do
Consumers will continue to look for opportunities to reduce their grocery shopping bill. They are doing this because they think food prices are too high and because they see the cost of living in other sectors increasing. If they can save $20 on their grocery bill, it might offset an increase in the cost of gas for their car or a cell phone bill. This will continue in 2025.
This will translate into trading down in the category, more focus on temporary price reduction, shifting to less expensive private label and more dollars being spent outside conventional grocery stores.
Trading down in the category can be to a lower price for the same product which might be produced with less expensive ingredients or even a smaller size. Although Costco continues to grow in share with big sizes people buy into the value they deliver. In a conventional store consumers perceive they are saving $1.00 on their grocery bill when they purchase a smaller size that might be more expensive per volume. Consumer behaviour changes, depending on where they are shopping and their perceptions of the specific retailer.
We know the percentage of sales and volume being purchased on TPR continues to grow. People feel good about saving .50 on an item. They are looking for these signs and probably more willing to leave a familiar brand to save the .50.
Most retailers price their private label products below national brands. We called this shielding when I was at Loblaw. If a national brand reduced price with some type of offer the private label would come down too. You do not see the private label changing as much now but for most every day prices the store brand will be cheaper.
Consumers are more willing to make an extra stop at a dollar store or some other retailer to find deals. They are also willing to try different brands if they see the saving is worth the risk.
What suppliers should consider
If you are not the #1 or #2 SKU in the category, you should be putting together a plan to grow your sales faster than the category average. Your customers are looking for proactive suppliers who want to grow tonnage. Often this will involve some TPR activity.
Stay very close to your cost of goods. If you determine you need to secure a price increase start early, focus on the facts and understand they will challenge you.
Relationships with retailers are important when they are focused on price. Your price needs to be right but you also need to remind them of all the other things you do as a supplier such as in stock position, supporting their initiatives, sending people to their stores etc.
Pay careful attention to POG review windows. Retailers will be making decisions about the listing base. You want to have sales momentum as they assess product performance.
Be aware of new programs to communicate price. Should you try to be there? What is your competition doing? They do not all make sense but when a retailer makes the investment to develop them you need to determine if they are right for your products.
Walk dollar stores to see what is in there. You might be competing against brands you are not familiar with. Decide if your products should be there or not.
The focus on pricing will continue and you need to be prepared to deal with it.
Peter
SKUFood Recipes for Success Podcast
In this episode, we’re excited to feature Carzan Local Meats, a family-owned business from Southey, Saskatchewan, dedicated to producing premium grass-fed beef and jerky products. Founded on the principles of sustainability and regenerative ranching, Carzan has become known for its locally raised meats and innovative flavour offerings in their growing jerky business.
Join us as we delve into their journey with Carter and Carmen, from their family roots to their commitment to providing top-tier products that reflect their passion for sustainability and community.
Get ready to hear the inspiring story behind Carzan Local Meats.
It is important to watch what is happening in food service and retail. We know price is important and when one of the largest quick service restaurant chains shifts a lot of focus to price and value, we need to take notice. McDonalds has announced a new value focused meal in the U.S. in response to consumer demand and the marketplace. Interesting to note the article says menu prices at McDonalds have increased 40% since 2019. It is interesting we hear a lot more about prices in grocery stores than restaurants. Consumer behaviour is always something to consider.
One challenge for food and beverage businesses is to manage the value focus but also keep promoting. McDonalds will invest $100M in promoting the new menu. You do have to remind consumers what you are all about and why they should support your brand.
I do have travel coming up to Toronto, Calgary, Lethbridge and Niagara Falls so if you want to connect or have an event in any of these locations give me a call or send me an email.
