Groceries are really getting more expensive – NRC

It has become insurmountable: groceries are quickly becoming more expensive, from the kitchen to the bathroom. This week, one food company after another came out with quarterly figures – and with words of caution.

On Wednesday, three companies indicated that they would raise prices. The Swiss Nestlé (maker of, among other things, Nespresso coffee cups, Maggi stock cubes, Kitkats, San Pellegrino sparkling water and Purina cat chunks). Then followed the American Procter & Gamble (Pampers diapers, Gillette razors Always sanitary pads and Dreft dishwashing liquid) and the French Danone (Actimel yoghurts, Evian bottled water and Nutrilon baby milk powder).

And then Unilever (producer of, among other things, Dove soap, Omo detergent, Ben & Jerry’s ice cream and Lipton iced tea) followed on Thursday with the same message.

High inflation and costs

The message that the top men of these companies come with is roughly the same: the costs of raw materials, labor and logistics have risen to such an extent in recent months that the prices of their products will continue to rise.

It is inflation “that we have not seen in twenty years,” Unilever CEO Alan Jope said on Thursday. The consensus also seems that it is far from over. “What we’re seeing on the inflation front is that the situation is going to get worse,” Nestlé boss Mark Schneider said. Jope said he expected the inflation peak somewhere in the middle of 2022.

Companies expect inflation to pick up and last until mid-2022

This week also showed that strong price increases are not only in the future. The food giants also increased their prices in the past quarter.

Unilever took the cake with no less than 4 percent. It is the largest price jump since 2012, financial news agency Bloomberg reported.

Expensive problems

An exceptional period of price increases. But also one you could wait for. Because manufacturers have been dealing with all kinds of – expensive – problems in the entire ‘chain’ for months: from much more expensive agricultural raw materials such as palm oil or cocoa to the scarcity of packaging materials such as cardboard.

The companies themselves partly cope with this, for example by switching to cheaper ingredients. “But at a certain point it became clear that a lot of price increases would have to come,” says Robert Jan Vos, analyst at ABN Amro.

The problems that almost all manufacturers are now facing can largely be traced back to the coronavirus outbreak.

For example, container transport has been disrupted since the start of the pandemic and is still “hugely” expensive. Especially now that China is taking new corona measures again. And that while many non-food raw materials, such as aluminum packaging material, have to come from Asia.

And the restart of the global economy after the lockdown period is causing a labor shortage and high fuel prices.

But when will the consumer notice all this? Or does he already notice?

You would think that when a company such as Unilever raises prices by 4 percent and hardly anyone in the Netherlands has any Unilever products at all (feel free to check this).

Emerging economies

But that conclusion is not easy to draw. That 4 percent is an average: the regional differences are large, Jope emphasized. Prices in emerging economies rose considerably faster than, for example, in Europe.

There is also another important link between the manufacturers and the consumer: the retail sector, especially the supermarkets.

Due to competition sensitivity, supermarkets do not like to talk about prices, but trade association CBL does state that there is “obviously” a relationship between the becoming more expensive of raw materials and prices at the checkout.

In any case, there is often a ‘cushion effect’ of a few months between, for example, more expensive raw materials and more expensive groceries, says Robert Jan Vos. If palm oil becomes more expensive today, shampoo and peanut butter will not immediately follow tomorrow. The delay effect is, for example, because supermarkets and manufacturers conclude contracts for a certain period.

According to him, it can also happen that some retailers keep prices artificially low at the checkout, in order to distinguish themselves from the competition.

“But in the end, and that is actually the case with everything, the consumer simply pays for it.”

Groceries are really getting more expensive – NRC
Source link Groceries are really getting more expensive – NRC

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