EU food inflation steady, for now

By Kacey Culliney

- Last updated on GMT

Related tags Europe European union United kingdom

European food inflation is at a steady 2.8% for June but with purse strings still tight and the risk of further inflationary pressures, branded manufacturers must innovate and differentiate from private label to thrive, according to analysts.

The European Central Bank pegged EU food and non-alcoholic beverage inflation figures at 2.8% for June 2012, slightly up on May’s 2.3%, while UK food inflation hit lows of 2.0% for June - the lowest in more than two years according to London-based Shore Capital Stockbrokers.

Shore Capital has forecast that EU food inflation is likely to steadily rise for the rest of the year, but Euromonitor International predictions suggest figures will not surpass a 2.5% average.

Clive Black, director and head of food research at Shore Capital, said that by the end of August the picture will be clearer.

“The next six weeks will determine food inflation trends, with the outcome of the Northern Hemisphere harvests. There has been a lot of speculation and volatility in commodity prices but it will only become clear post-harvest,”​ Black told FoodNavigator.

Francisco Redruello, senior food analyst at Euromonitor International, said that across Europe consumer food inflation in the EU is likely to be “very limited as a result of weak consumer expenditure in peripheral economies”.

“As seen in the past, EU food manufacturers will take on the largest part of input inflation as supermarkets and hypermarkets hold a strong bargaining power in Western Europe,”​ Redruello said.

Thriving amid inflationary pressures and weary consumers

While steady inflation levels is somewhat ‘good news’ for customers, the threat of continued price surges have not vanished and consumer spending sentiment remains tentative, the analysts detailed.

Black said that while industry impact will vary should input costs surge, it will be major branded players that are more successful in recouping prices as private label will struggle to balance costs easily.

However, branded manufacturers must innovate and differentiate from private label to succeed, Redruello said.

As private label has become increasingly sophisticated, premium but still cheap, brands need to work on offering more, he said. Investment needs to be in innovation and development of premium products that hold ‘added-value’ for the consumer, he added.

How to add value?

This can be social aspects and values, for example Rainforest Alliance or Fairtrade, ethnicity twists, organic or health and indulgence, he detailed.

He cited examples of Rainforest Alliance ice cream launches in the UK, Japanese vegetables in France, and white chocolate healthy cereal options in Spain.

Out of all these ‘value-added’ focuses, “health and indulgence is quite important at the moment”,​ he noted.

Consumers want to remain healthy but feel as though they can indulge, particularly with more time being spent at home cooking and eating, as people try to cut down on eating out costs, he added.

Across Europe this year there have been several examples of health brands tapping into this trend by broadening portfolios with more indulgent flavours, he said.

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