The annual Food Inflation Report from Prestige Purchasing shows a second consecutive year of food deflation, but foodservice price deflation (in both food and drink) has been slower than within the retail market. The report forecasts that 2016 will see food inflation rise slightly to 0%, with soft drinks returning to inflation at 0.5%, whilst prices for alcoholic beverages continue to fall with deflation at -1.0%.
This follows on from 2015, where food inflation has remained negative for the second year running. Using data from the Office of National Statistics, (ONS), the report places headline food inflation for 2015 at -3.1%.
In the food retail market, the much-publicised arrival of discounters, as well as the rise of online and convenience shopping, has put footfall in the large out of town assets under pressure. The supermarket’s relative dependence on these assets has forced them to be more aggressive on price to drive volume. This means that retail food inflation fell faster than the foodservice sector. The Foodservice Price Index, which has been used to produce this report, places food and drink deflation for the foodservice sector at -1% for 2015.
These headline inflation figures come in contrast to last year’s forecasts, where industry experts expected inflation to return to positive figures. However, the strengthening Pound, the Russian ban on EU food products, and falling oil prices has put downward pressure on prices.
The gap between retail and foodservice inflation increases
“The arrival of new competition for supermarkets in the form of discounters, coupled with new routes to market from online and convenience stores, has put footfall for large out of town stores under pressure. The supermarket’s relative dependence on these assets has forced them to be more aggressive on price to drive volume.
“This has contributed to increased downward pressure on the inflation rate for retail food prices. However, the foodservice market hasn’t been exposed to the same market dynamics, and this has lead to a widening gap between foodservice prices and retail prices”, explains David Read, Chief Executive of Prestige Purchasing.
The discrepancy of over 2% between the deflation rates in retail and the foodservice sector have led Prestige Purchasing to partner with CGA Strategy this year to use the Foodservice Price Index (FPI) to produce this report. It provides a more accurate view of pricing trends, based on a basket of goods for the foodservice sector, from millions of rows of historical data points.
Foodservice Category Highlights from 2015
Based on FPI findings, the following categories experienced these rates of annual change.
| Category | FPI Oct ‘14 | FPI Oct ‘15 | Annual Change |
| Bread & Cereals | 108.1 | 107.3 | -0.8% |
| Meat | 113.5 | 110.8 | -2.3% |
| Fish | 102.3 | 108.4 | +5.9% |
| Milk, Cheese & Eggs | 97.8 | 93.2 | -4.7% |
| Oils & Fats | 90.9 | 87.5 | -3.7% |
| Fruit | 102.1 | 103.1 | +1.0% |
| Vegetables including potatoes | 102.1 | 102.4 | +0.3% |
| Sugar, jam, syrups, chocolate & confectionery | 98.6 | 98.3 | -0.2% |
| Misc. food products | 102.3 | 101.6 | -0.7% |
| Coffee, tea & cocoa | 99.2 | 98.9 | -0.3% |
| Mineral waters, soft drinks & juices | 107.5 | 107.2 | -0.3% |
When looked at on a by-category basis, the largest price movements this year have been in the fish (5.9% up) and dairy (4.7% down), with notable movements downward in meat and oils & fats.
Benign outlook
Explaining the reasons behind the rise and fall in these categories, David Read, chief executive of Prestige Purchasing comments, “The outlook for food inflation in the year ahead is likely to be relatively benign. However, operators should remain cautious of the significant risks present, which might change the picture dramatically. For example, it’s quite possible that the planned EU referendum could be held during 2016, which, if negative on EU membership, could trigger substantial movement in exchange rates, with a resultant impact on food prices. Operators would do well to ensure that they are kept informed and work hard to seek out any signals that could radically alter future prices.”
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