Infl ation nation: Julia O’Reilly

Through the roof

As retailers contend with the highest rate of inflation in 20 years, grocery prices reach levels that would have been unprecedented a year ago. Julia O’Reilly takes a closer look at what’s behind the phenomenon

We are currently experiencing the highest annual levels of inflation in 20 years. Brexit, Covid-19, and supply chain issues have created the perfect storm. Retailers across the country are facing inflation shock as fuel and groceries surge in price.

We had been warned. In November 2021, Irish families were told to brace themselves for significant grocery price hikes at the hands of pandemic-linked distribution issues. Over the last 12 months, the price of bread increased by 5.3%, poultry by 3.5% and pasta by 6.4%, the Central Statistics Office (CSO) has said. The price of our favourite pick-me-ups, coffee and tea, climbed 2.5% and 1.9% respectively. Oils and fats, such as butter, vegetable oils and olive oil, are now 4.4% more expensive than this time last year.

With these increases, the average cost of a weekly shop is set to grow by €15. Under likefor-like grocery price inflation, which assumes shoppers buy the same products this year as they did last year, a typical consumer would spend €780 more on groceries.

For shoppers in Northern Ireland, annual shopping bills are set to rise by £180 on average. Kantar said inflation in January stood at 3.8%, which was an increase on December levels.

Steady increase

Prices had been steadily increasing over the course of the year, but the most dramatic inflation occurred in the last six months, in line with rising energy prices. In the 12-weeks to 26 December, Kantar put grocery market inflation at 1.2%. Overall food and nonalcoholic drinks are up 1.6% on an annual basis. Grocery price increases across 30,000 items have jumped by an annual rate of 1.7% — this is the fastest growth since October 2020. The number of products sold on promotion was 3% lower than the previous January.

Meanwhile, those feeling the impact of rising inflation on their personal finances have been shopping around for the best bargains they can find. Emer Healy, senior retail analyst at Kantar, said: “We’re already seeing evidence of people starting to shop around at different retailers to try and find the best price for their weekly shop.”

Hidden costs

Behind each inflated price is a complex web of factors that the public tend not to see. In November of last year, it was reported that the cost of foil trays for use in the ready meal market had seen a 10-15% increase and a box of vinyl gloves used by deli counter staff to handle food had witnessed a tenfold cost increase. Price increases are not about profit maximisation; for the retailers across the country that are absorbing price increases of this sort and more, driving prices up is the only option.

Meanwhile, we are witnessing cost hikes for petrol and diesel not seen in 30 years. Recent figures from the CSO revealed that diesel and petrol are up 36% and 32% respectively. The cost of filling a car is now at its highest level since the AA first began to survey fuel prices in 1991. Pump prices are nearing the €2 per litre mark. Add to that the burden of surging energy costs - prices for electricity are up 22.4% while gas is up 28% - and it’s clear why many retailers are feeling the pressure.

CSNA National Executive member Sara Orme recently appeared on Claire Byrne Live to discuss inflation and how it is impacting retailers and their customers

Feeling the pinch

Sarah Orme, CSNA National Executive member, and the owner of Daybreak, Westmeath, recently appeared on Claire Byrne Live to discuss the issue.

Orme has been paying more for the maintenance of services, and that increase is reflected in the prices in her store: “Suppliers have increased costs because of transport or wages. We’re being given the same reasons. They are hidden costs to us. A lot of this is manufacturer price increases and we really have to pass them down the line to the consumer.”

And consumers are certainly feeling the pinch - particularly when it comes to fuel. “A lot of people have been commenting that it would have been €70 or €80 to fill the car [in the past],” says Orme, “but it’s now over €100 for the same fill that probably only lasts them the week.”

Within the shop itself, Orme says customers are well aware of the price changes, however small. “A lot of people would come in with the >>

Over the last 12 months, the price of bread increased by 5.3%, poultry by 3.5% and pasta by 6.4%, according to Central Statistics Office figures

Vinyl gloves used by deli counter staff to handle food have increased in cost tenfold

>> change ready for the newspaper. We’ve had price increases on the newspaper, as well as bread, milk and poultry, from anywhere between 7% and 12%.”

Food waste

Like many retailers today, John Allan, chairman of Tesco, said the company is doing what it can to “pull prices down” despite the soaring cost of living and inflation across Ireland and the UK.

Allan recently encouraged families to ignore ‘over-conservative’ best before dates to make their grocery haul go further. “There is a re-appraisal going on at the moment about whether sell-by or eat-by dates are overconservative, and I think that’s going to change in the years ahead,” Allan told BBC One on 6 February. “Quite a lot of those dates will come off. I know I can keep bread in the fridge for quite a long time beyond its official life and I think savvy customers realise that as well.”

Soaring inflation

We are dealing with the largest jump in inflation in 20 years - the annual rate of inflation rose by 5.5% in December, which is an increase from 5.3% in November, and the highest annual rate since April 2001. No doubt each household in Ireland will be impacted by this, but those on a lower income will feel it most severely. The nature of this current surge in inflation puts further pressure on those most vulnerable to price changes as it is not discretionary consumption. Doing your grocery shopping, filling your car with petrol, or heating your home are not luxuries consumers can choose to radically cut back on.

Even before our recent price hikes, living in Ireland did not come cheap. Already, we are the 16th most expensive country in the world. This is according to price-comparison website Numbeo, which ranked 139 countries based on the average price of goods and services, including groceries, restaurants, transport, and utilities.

“We are dealing with the largest jump in inflation in 20 years - the annual rate of inflation rose by 5.5% in December, which is an increase from 5.3% in November, and the highest annual rate since April 2001.”

Euro-zone inflation

Still, this problem is by no means unique to Ireland. Euro-zone inflation rose to 5% in December, a record high since the single currency was created more than two decades ago. The figure for Ireland was put at 5.7%, which is even higher than what was recorded by the CSO.

Driven by soaring energy and food prices, annual price growth in the euro-zone exceeded expectations of economists polled by Reuters, who had predicted on average a 4.7% rise, which would be a drop from the 4.9% inflation seen in November. The unexpected increase could put pressure on the European Central Bank to reduce its monetary stimulus quicker than planned.

European wholesale natural gas prices near doubled in the run-up to Christmas, reaching record highs. Those prices jumped again recently when supplies from Russia slowed. Supply-chain issues continue to cause delays and create higher costs for manufacturers, which in turn pushes up the price of consumer goods.

What’s next?

And yet, some economists expect euro-zone inflation to start falling in the coming months as Europe’s largest economy, Germany’s, pandemic-driven temporary cut in sales tax disappears, energy prices stabilise and global supply chain bottlenecks ease.

Despite this, there remains concern that higher inflation could become embedded as wages follow prices and business and consumer expectations change. Further, it may seem inevitable that the stop-start nature of the pandemic will cause food inflation to continue to soar. n

Irish grocery & convenience retail – outlook 2022

Owen Clifford, head of retail sector, Bank of Ireland, reflects on the key factors driving investment within FMCG

The unprecedented sales performance of the last two years has acted as an accelerant in the evolution of the Irish grocery and convenience sector. As family owned retailers nationwide compete with international operators such as Tesco, Aldi, Lidl and Circle K, a recognition that investment is required to sustain their business has driven strong market activity. In Bank of Ireland we provided funding in excess of €125m to Irish family owned grocers in 2021 facilitating the development and growth of their businesses. Five areas driving this investment and shaping the future of the sector are as follows: 1. Store revamps & investment: As retailers seek to preserve and develop customer goodwill/engagement, many progressive operators are now undertaking comprehensive store revamps. Where a robust revamp plan is implemented successfully, based on Bank of Ireland data, retailers can expect to increase sales by 5%-10% and margin by 0.5%-1%. At present I am supporting retailers with the development, fi nancing and evaluation of their revamp strategies on a daily basis – the volume of transactions being completed suggests that those who fail to invest in the coming years will fi nd it ever more diffi cult to maintain customer engagement. 2. Consolidation in the market: Store and group acquisition activity gathered pace throughout 2021 and further consolidation is expected in the Irish market in the months ahead. The Irish forecourt sector has seen notable deal activity as fuel brands seek to reposition their focus towards a convenience, food-to-go offering - further developments in this respect are expected linked to the targeted electrifi cation of the Irish motor fl eet. Covid-19 and the strain/additional workload associated with same has been a catalyst for a number of retailers to examine the sale of their business. The number of store purchase proposals that I reviewed

Owen Clifford, head of retail sector, Bank of Ireland Where a robust revamp plan is implemented successfully, based on Bank of Ireland data, retailers can expect to increase sales by 5%-10% and margin by 0.5%-1%

increased signifi cantly in the latter months of 2021 and this growth in transaction volume is expected to continue into 2022 – with the larger groups increasing their store portfolio and the next generation of retailers also getting an opportunity to take their fi rst steps into store ownership. 3. Online grocery: The future of online grocery will remain in the spotlight in the months ahead. The current low levels (under 5% of total grocery sales) conducted via online demonstrate that a real growth opportunity is available if a frictionless, effi cient, reliable service can be delivered.

It will be interesting to see if further partnership models develop via Ocado,

Buymie, Deliveroo, Just-Eat or internal ‘dark stores’. The cost of picking and delivery linked to the online channel remains a deterrent to many retailers. I would expect a greater emphasis to be placed on userfriendly click and collect offerings from all the leading brands in the coming months.

The development of more intuitive/extensive brand apps linking personalised offers, loyalty rewards, click and collect, community initiatives and nutritional advice etc will be a priority for all brands to maintain customer engagement. 4. Sustainability: In line with worldwide trends, Irish consumer expectations around the societal impact of retail operations have intensifi ed and many shoppers are now willing to pay a premium for products that meet their values. Irish retailers have an important role in supporting the Irish government’s roadmap of net zero carbon emissions by 2050. Strong engagement in the proposed ‘deposit return scheme’ and nearshoring their supply-chain can be important steps in this regard. A number of grocery/ convenience retailers have already completed

‘green’ projects or have it as a constant within their capital expenditure or process improvement programmes – monitoring and measuring the benefi ts of same is now the next step in the transition to a more environmentally friendly business model. 5. Personnel investment: In a competitive labour market, sourcing and retaining the best people is vital to sustain a retail business.

Retailers must therefore recognise that two key inter-connected investment strands in 2022 will be in technology and their people. A structured employee development plan that incorporates role variety, up-skill opportunities and competitive remuneration needs to be embedded within the culture of the business. The smart use of digital/ automation tools that can eliminate labour intensive tasks and drive effi ciencies within the business will support this employee focused model. Excellent customer service is a product of an engaged team – development of personnel is an imperative for progressive retailers in the coming years.

As consumers, Covid-19 has not only increased our interaction with the Irish grocery sector – our expectation of our local stores is also now much higher. It is therefore heartening to see Irish family-owned retailers embracing this challenge and proactively investing in their stores. In doing so and with our support, they are sustaining the vibrancy of local communities nationwide. ■