With Food Prices Rising, Raw Materials Companies Are Better Protected Than Others

Inflation Affecting Grocery Store Prices, Big Food Brands Could Struggle

On both sides of the Atlantic, grocery store buyers are facing higher prices with inflation spiking in the UK and the US. Analysts say food prices are growing more rapidly than wages, zapping consumer spending power. Grocery stores are now considering ways to maintain market share while juggling increasing prices.

Large food manufacturers like Nestlé (NSRGY), Danone (DANOY), and Unilever (UL) will soon raise wholesale prices for grocery stores, but they may meet resistance. During the financial crisis of 2007-2008, discount grocers such as Lidl and Aldi flourished in the UK, and grocery store brands will be looking to avoid past mistakes from a pricing perspective. Analysts predict smaller food brands are most at risk of losing business amid rising prices.

Some Companies Further Up The Supply Chain Are Less Vulnerable

Industry observers explain how ongoing supply-chain issues affect some types of food companies more than others. Companies like Unilever and Nestlé turn raw materials into branded products that require a wide shipping network and plenty of packaging. The shipping delays and increased packaging costs observed in recent months are therefore a problem.

Raw materials companies such as the Kerry Group (KRYAY) and Barry Callebaut (BYCBF) are less exposed to supply-chain problems, generally having larger but less frequent shipments that go directly to processing plants. Packaging and branding materials are also less important to them and play a smaller role in the bottom line.

Game Plan: Advisors Suggest Ways To Navigate Rising Grocery Prices

Rising prices and the prospect of long-term inflation can leave shoppers with a bad taste in their mouths, but advisors have some tips on how to overcome the problem. One suggestion ties into the notion of big brands and expensive packaging, as consumers can try out substitutes: looking for cheaper brands or opting for store brands instead.

All of this underscores the need for a weekly plan and budget, including how many meals will be made at home and what ingredients are needed. The required ingredients could already be on hand like mayo in the fridge or dry pasta in the pantry, and it’s possible to make some recipes with half the amount of meat, for example.

Advisors recommend cooking meals at home more frequently, as inflation also increases the cost of dining out. With inflation expected to last for a while, producers and consumers up and down the food chain are making adjustments.

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