Consumers a major factor in food inflation

Wednesday, May 18, 2011

by PAT CURRIE

After crunching the number throughly, Kevin Grier, senior market analyst with a Guelph-based agriculture and agri-food think-tank, has concluded the connection between inflation and grocers’ profits is as flexible as a bungee cord.

"The basic message is that the consumer is going to decide whether inflation is good for grocer margins or not," Grier concluded in a study for the George Morris Centre.

His paper, Inflation and Canadian Grocer Margins, released this week by the centre, showed wide variations between the general trends in the economy, wholesale and retail grocery prices and in profit margins at the retail level.

"There is no statistical relationship between the changes in the total Consumer Price Index (CPI) for all items and the CPI for food from stores," Grier reported.

Grier notes that there are far too many factors at play that could result in weaker margins for grocers, not the least of which is consumer's trading down to lower priced items and discount stores.

Consumers are still the major factor. High prices tend to drive consumers to seek cheaper products which drives down prices which in turn lures back customers who tend to spend more, driving prices back up again, Grier noted. BF