Price Inflation To Change Food Retailing Dynamics

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Price Inflation To Change Food Retailing Dynamics

By Linda Lisanti

Food price inflation will be more severe and longer lasting than many anticipate, and how food retailers accept and respond to this will determine the winners and losers, said Jim Hertel, managing partner at Willard Bishop, during the "Future of Food Retailing Webinar: An Outlook for Store Formats," presented with The Food Institute yesterday.

The good news, though, is that convenience stores and other food retailers are poised to gain an increase in trips, as consumers trade down from eating out at restaurants and instead seek out more food at retail for home consumption, he explained.

Food retailers with a strong shopper value equation and plans in place to take advantage of these volatile pricing conditions will succeed. Having a strong shopper value equation means: knowing how to win with shoppers; thinking about the stores' banners like marketers think about their brands; and having a strong private label brand, according to Hertel, who also noted that merchants who offer a compelling prepared foods presentation in their stores to capture new "food at home occasions" will be well-positioned.

The increasing number of fresh format, limited assortment and super warehouse formats are particularly poised for strong growth in these conditions, he stated, citing that they have a very sharp shopper focus and provide a good value shopper proposition.

His other recommendations for food retailers included:
-- Ensure a winning pricing strategy that's consistent across the store.
-- Communicate and make sure you get credit for the values you offer today.
-- Create or enhance your private brand program to tap into its full potential.

The ways in which retailers handle the continuing food inflation will impact where consumers shop and change market dynamics. There will be high market-share volatility, Hertel said. In 2007, convenience stores continued to show steady growth -- a 4.4 percent increase in sales for those without gas and a 5.4 percent increase for those with gas. However, market share for both remained relatively flat, the report stated.