Your Reading List

Margin pressures seen for grocers, processors in ’09

Canada’s grocers, ever sensitive to their image when it comes to pricing, will be even more so in 2009, while food manufacturers won’t be able to rely on skyrocketing commodity prices to press for price increases.

Those factors, according to the George Morris Centre’s analysis of Canada’s food industry in 2008 and looking forward, will mean “more margin pressures for both manufacturers and retailers in 2009,” the centre said.

The analysis, which appeared recently in the Guelph-based agri-food think-tank’s Grocery Trade Review, suggests Canadian supermarkets’ gross revenues likely rose by at least four per cent in 2008, looking at Statistics Canada data through October.

That’s based on total projected 2008 sales of $69 billion, up from almost $66 billion in 2007, and on grocery store price increases of 3.5 per cent in the January-to-November 2008 period compared to the year-earlier time frame.

That’s including an increase of 2.5 per cent in November 2008 alone compared to October (or nine per cent compared to November 2007). The chief cause for the rise in prices in late 2008 lay in the fresh fruit and vegetable aisles, where fresh fruit prices rose six per cent and fresh vegetables by 20 per cent in November over October 2008.

That, in turn, is because “fresh fruits and vegetables are very sensitive to changes in the exchange rate, especially during fall and winter when Canadian product is not available.”

Year-over-year price hikes are thus more noticeable, given that the Canadian dollar’s exchange rate with the U.S. greenback peaked last fall and “dipped most severely” this fall.

“The assertion, therefore, is that while the price of food purchased from stores in Canada did increase dramatically in November, it was due more to exchange rate changes and changes in costs as opposed to margin increases at retail,” the review noted.

“Modest improvement”

Overall, given the sales hikes across some, but not all, grocery aisles, “real tonnage” through grocery stores will thus likely have increased by about one per cent in 2008, a “modest improvement” over 2007, according to the Morris centre’s senior market analyst, Kevin Grier, who wrote the report.

Canadian price increases, he wrote, have “generally been much more modest” than those in the U.S. in 2008. U.S. prices of food consumed at home rose by “well over” six per cent, compared to the 3.5 per cent hike on this side of the border on a year-to-date basis through November.

Here in Canada, the five per cent increase in food sales compares to less than one per cent growth in total manufacturing sales in 2008 (up from zero growth in total manufacturing in 2007).

And food manufacturing’s share of Canada’s total manufacturing sales will be almost 12.6 per cent in 2008, which Grier noted will be the largest share food has taken since 1993 (13 per cent).

Grier notes that within that four to five per cent overall food sales increase, individual food sectors have performed “very differently,” with flour milling and vegetable oil sales up significantly, while meat, cereal and confectionery sales in fact declined in 2008 compared to 2007.

On the manufacturing end, food processors’ prices rose “significantly” on average in 2008, even given their price decreases for three straight months starting in September, he noted.

Most of the increase in food manufacturing, he wrote, is in animal food manufacturing (both pet food and livestock feed) and grain milling (both flour and oilseed processing).

The biggest increases being in food manufacturing at such “primary” levels (compared to below-average increases for cereal, dairy, confectionery and frozen foods and an actual decline in meat prices) suggests the food manufacturing sector is still working through the commodity price hikes seen earlier in 2008.

However, Grier said, given the recent declines in commodity prices, food manufacturers are going to have a tough time of trying to push through the costs they absorbed in the more expensive first half of 2008.

“Despite the volatility, it does appear that food manufacturers were able to pass along decent pricing increases in 2008,” Grier wrote. “Retailers, for their part, were also able to move pricing higher in key areas.”

About the author

Glacier FarmMedia Feed

GFM Network News

Glacier FarmMedia, a division of Glacier Media, is Canada's largest publisher of agricultural news in print and online.

Comments

explore

Stories from our other publications