Europe’s lower food inflation isn’t good news for marketers

livemint.com:

Huge hikes in food prices and other daily essentials in European markets are coming to an end. That’s the message coming loud and clear from the big European retailers and consumer-goods companies. While this should bring relief to suffering consumers, it means different challenges for supermarkets and manufacturers.

After increasing sharply for the past two years, prices for many goods are set to stabilize in the months ahead. This is due to manufacturers seeing the surging commodity costs that took a chunk out of their margins start to abate. Unilever, the owner of brands like Dove and Marmite, said it faced €400 million of materials inflation in the second half of its current fiscal year, down from €1.6 billion in the first half.

Among the items that have eased in price are plastics, packaging and palm oil. But there are still pain points, for example, cocoa, sugar and robusta coffee. In Nestle’s agricultural commodities basket, costs are still on average 29% higher now than between 2015 and 2019.

There are question marks over the direction of dairy prices and wheat, the latter of which had fallen sharply before Russia withdrew from the agreement allowing Ukraine to ship grain through the Black Sea. Despite these pressures, it looks like the hikes that consumers have had to endure since late 2021 are largely over. The impact on recent earnings from higher prices was largely from actions already taken.

There will be far fewer upward revisions in the months to come. Where they do happen, they will be selective and more modest. As prices have gone up, the amount of goods sold has fallen, as consumers switched to cheaper private-label products or turned to the German discounters, Aldi and Lidl.