Analysts warn food suppliers of changing market

The food industry has been warned that the pressure currently being faced by retail food suppliers reflects a changing market, with an inevitable knock-on effect on wholesale food suppliers further up the supply chain.

The industry has been strongly advised to address the change facing the business as recent figures show falling volume sales, partly as a result of the current financial situation squeezing consumers to be more careful with their declining purchasing power. The concern is that as food represents one of the few areas in which consumers can make savings, the strategies they employ during the economic downturn will be continued when the economy recovers.

Shoppers are increasingly discerning and are using a number of methods to stretch their resources, including changing brand allegiance, reducing waste and relying less on ready-prepared meals in favour of making meals from scratch with fresh ingredients. A trend causing some alarm is the increasing use of several different loyalty cards to take advantage of special offers from different retailers, which undermines the customer base and makes it difficult for food suppliers to predict their market share.

City analyst Investec found that the strategies of boosting sales using promotional loss leaders and special offers is no longer as effective as previously, tending to shift buying patterns without increasing the overall volume of sales. Retail food suppliers will increasingly have to balance potential increased shopper footfall against the cost, which the analysts believe will have to be self-funded by reduced profit margins rather than by increased sales.