Inflation, and especially food inflation, is rising at a level many of us have never seen. For example, the Consumer Price Index (CPI) rose 4.1% on a year-over-year basis in August, an 18 year high, and follows a 3.7% increase in July. And this may only be the start, as supply chain issues continue to drive manufacturers’ costs up with what some are calling a “COVID tax.”
Climate change is also contributing to rising food prices, including everyday staples. An “out of control” durum wheat market is expected to cause a pasta shortage as Canada’s durum wheat harvest is down by over a third due to severe heat and drought, causing prices to spike by 90%. What impact might this tangible consequence of food inflation have on, say, post-secondary students who’ve finally gotten the chance to live on campus, only to find jacked-up food prices even on bargain menu items? Or on families struggling to feed themselves on a COVID-adjusted budget?
Climate and employment crises are forcing grocery and menu prices to climb
Smaller harvests are anticipated across most commodity crops due to climate issues. And anyone who’s grocery shopped recently can attest to much higher butter and meat prices. “Shrinkflation” is already being practiced by some manufacturers to keep the absolute shelf price down while decreasing the amount of product in the package.
Couple this with higher menu prices in foodservice, up 3.1% in July on a year-over-year basis due to higher input prices plus rising wages due to worker shortages, and consumers are in for some sticker shock. According to Restaurants Canada’s Q2 2021 Restaurant Outlook Survey, “nearly half (48%) of foodservice operators expect to boost menu prices by 4% or more over the next 12 months. In fact, one in five plan to raise their menu prices by 6% or more.”
The upshot may be a shift of so-called “revenge spending” we’ve seen from consumers with pent-up demands to more “value” options. That “convenient” restaurant delivery option? It may not be worth the additional price for as many consumers going forward. The same goes for meal kit delivery services that promise to make home menu planning easier — at some point, mere convenience may no longer be seen as worth the money.
Change will continue to be the only constant
The data certainly points towards an impending shift in behaviours; 78% of Canadians claim they are concerned enough about food prices to change how they shop. Our newly adopted COVID habit of a one-stop online grocery shop may be replaced with an in-person visit to a grocery discount banner. And, loyalty levels could fall as consumers shop more deals and then pantry load when they find one.
For smaller, craft manufacturers and restaurateurs, who will have less purchasing power to control input prices so their price increases will outpace larger competitors, having a human face and touch on their business will be more critical than ever. For your own situation, think about what convenience options consumers will view as providing good value in a high food inflation future. How will your food business weather this rising storm? It’s time to start the conversation – before the water gets too high.