Manufacturers face toughest price wars ‘in living memory’

By Rod Addy

- Last updated on GMT

Related tags Cost

Manufacturers face toughest price wars ‘in living memory’
Major retailers put the squeeze on processors as global ingredients costs rocket

Commodity price increases are presenting some manufacturers with their toughest negotiating environment “in living memory”, with retailers delisting or suspending products not meeting their price demands.
So say processors that have contacted Food Manufacture anonymously.

“I’ve experienced a very hard level of negotiation; the hardest ever I have known,” said one industry veteran.
Tesco hit the headlines last year for delisting 12 Premier Foods Hovis products when it demanded higher on-shelf prices. But other major supermarkets have also suspended or delisted products, or threatened to do so, for similar reasons, especially in the midst of the latest price promotion battle, sources confirmed.

“The supermarket war is not good; they are delisting brands in favour of own-label,” said one.
One source said retailers’ efforts to claw back margins by slapping on last-minute costs was “downright shameful”. “Costs suddenly spring out after you have submitted pricing that they say cannot be factored back in as it’s too late,” he said.
Ingredients suppliers are unlikely to be able to carry the cost increases either.

“Some of our suppliers will go broke if we don’t support them,” said one manufacturer.
Another said the tough trading climate would stifle innovation. “If negotiations go on, it’s difficult to envisage any NPD [new product development] this year.”
Others expect retailers to pass some price inflation on to consumers from the beginning of this month, having held back VAT rises on items in January

Spiralling wheat, coffee and cocoa costs all hit the headlines recently, but sharp spikes are expected in other areas. Sultanas have already seen steep rises, up 60% year-on-year with Turkey thought to be sitting on supplies in an effort to raise prices.
Market analyst Mintec also said continuing bad US weather could hit soya and corn crops. High soya prices would also raise the cost of soya meal, a common source of animal feed. This would have a knock-on effect on meat prices.
Mintec also highlighted sharp increases in crude oil prices, putting upward pressure on biofuels prices. Others cited significant rises in rapeseed oil prices, with a resultant impact on the cost of emulsions and products such as margarine.

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