Pricing Pressures Seen Lingering

MARK HAMSTRA

BARRINGTON, Ill. — Conventional food retailers and branded manufacturers are at risk of losing more share to nontraditional channels and to private label if they persist in passing along food-cost increases in an effort to build margins, according to a presentation last week.

“We're seeing a welcome embrace of inflation from both manufacturers and retailers,” said Jim Hertel, managing partner at Willard Bishop LLC, based here. “We believe this could be detrimental for both.”

Non-traditional food retailers like dollar stores, supercenters and others could exploit this by emphasizing their price differentials, he explained, and traditional retailers will continue to expand their private-label offerings at the expense of branded product sales to retain value-conscious customers.

In addition, despite fluctuations like the dip in the Producer Price Index in May, food-cost inflation is likely to persist over the next three to five years, Hertel said. He also said he believes high unemployment and underemployment are also likely to persist in the U.S. during that time frame, keeping pressure on consumers.

The webinar, presented by Willard Bishop LLC and the Food Institute, Upper Saddle River, N.J., was based on findings from Willard Bishop's Future of Food Retailing report, which estimated that the traditional grocery channel lost about 1.1% of its market share in 2010, to 46.8%, and stands to lose nearly 3% more by 2015, to about 43.9%.

Nontraditional food retailers are projected to increase their grocery share to 40.4%, from 37.8%, with the rest captured by convenience stores.