Inflation is back and food prices are on the rise once again. Many economists predict inflation could rise as high as 3% by the end of 2017.
This presents a considerable challenge to the food & drink industry. In recent years, consumers have become used to low levels of food inflation as the supermarket price war and aggressive procurement processes have conspired to keep the price of shopping low.
However, last month’s rise on the CPI suggests this trend has now come to an end. Indeed, inflationary pressure has already turned the battle between producer and retailer public - consider the spat between Unilever and Tesco.
Further inflation could bring other private disputes to the wider public, with the media as ever awaiting any new and controversial stories from Brexit.
Many lauded Tesco for its response to ‘Marmitegate’, arguing it cleverly positioned itself as a defender of customers. But an orchestrated and nuanced campaign from British food producers against a retailer could yet pose a real reputation risk, especially if producers look like they’re being squeezed. Take the controversy over milk prices in 2015: dairy farmers effectively raised awareness of how little (in their opinion) some supermarkets were paying them, and consumers came down on their side. Consumers won’t necessarily side with the business driving down prices - especially if it’s seen to damage the economy.
Communicating cogently the pressures the food industry faces as we disentangle from the EU will be therefore be vital. Any need to raise prices should be communicated as quickly as possible. It should also be intelligible, which means giving a clear and demonstrable rationale. The final and most crucial principle is transparency. The industry as a whole must not use rising business costs as cover to profiteer. This will mean having reasoned conversations up and down the supply chain and building consensus. The companies having these conversations and following these principles will be better placed to avoid consumers’ wrath.
Stephanie Bailey is head of corporate at FleishmanHillard Fishburn
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