Food deflation – not soufflés, but the 1 percent

13 March 2015

Dan Hawker

Dan Hawker

Former Head of Tobacco, Wholesale & Retail

The Grocer recently called out that food inflation has fallen for the second month running for the first time ever.

Some categories have suffered more than others, but overall, a large part of the blame falls on fierce competition, using price and promotion to win - or just maintain - market share.

What does this mean for food manufacturers?

  • Increased pressure on cost reduction, at a time when consumers are still demanding quality and supply chain integrity following on from the horse meat scandals
  • Increased unpredictability and volatility in demand, because of the way certain promotion mechanics work, such as vouchers
  • A race to the bottom in some categories such as fresh food, which makes discussions about strategy and category growth difficult to develop.

All of these challenges contribute to problems in raw materials cost and sourcing, problems in supply chain optimisation, problems in demand planning and fulfilment, and problems in customer service and revenue management.

What can be done?

There are 2 main dynamics at play in this story - 1) heavy use of management of trade promotions and 2) identifying and responding to dramatic changes in demand.

  • If you are a food manufacturer, do you understand all of your promotions? Do you know the hard facts about the extra margin in the margins? Borrowing from Dave Brailsford's focus on marginal gains to bring world class performance, do you know where your 1% tweaks are that can help you leapfrog the competition?
  • Have you invested in the right enablers to optimise your demand - gathering all your demand signals to plan for medium and long term demand, and also to react quickly to short term demand sensing?

Many of our Consumer Goods clients started this journey years ago, but for those who are still early on, there are a lot of enablers out there - the challenge is to understand the change needed in the business to make best use of them, to identify and capture the 1% gains - the margin in the margins.

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