The big squeeze – will post-pandemic price wars and rising costs increase tension between grocers and suppliers?

Interesting article in Just Food (in which I am quoted #humblebrag) about the challenges facing food suppliers. At face value it seems that grocers and food manufacturers were one of the few success stories during the pandemic. Average basket sizes grew, people reverted to treats to stave off the boredom and anxiety brought about by Covid and lockdowns; it seemed the world of F&B was thriving.

However, dig a little deeper and it’s a much more complex story. Grocers, already trading a small margins, were seeing huge increases in online shopping. While a good news story in many respects as the most vulnerable people in society were able to receive necessities, for the nation’s supermarkets this squeezed profits further given the complexity of fulfilling online orders. And, if margins are being squeezed on the ‘frontline’ this is bound to have repercussions across the supply chain.

Add to that post-pandemic concerns about supply chain resilience, increased consumer attention on the provenance, packaging and sustainability issues and there is potential for significant tension.

It seems inevitable we will see some portfolio consolidation among suppliers. There is too much choice and those with more commoditised products will see themselves lose out to private label alternatives. Similarly, one could anticipate some re-pricing among more premium brands, particularly those in the ‘healthy’ eating and plant-based categories as consumers seem happy to pay more for more ethical sound goods.

Either way, this will take some time to shake out across the section as the entire food and beverage industry deals with the longer term consequences of Covid.