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Global 250: The Deep Disruption of Inflation

Record prices for ingredients and materials transformed the food and beverage manufacturing industry in 2022, and significantly altered consumer buying behaviors for retail goods.

Inflation groceries food manufacturing
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Those who remember the late 1970s and early 1980s with a sense of nostalgia likely don’t extend that fondness to the record inflation that defined the economy during Jimmy Carter’s presidency and the early years of Ronald Reagan’s administration, eventually leading to a recession that ended in late 1982.

The inflation rate during that time reached double digits three consecutive years from 1979 to 1981, with a peak of 13.55% in 1980. The U.S. never reached double-digit inflation again in the ensuing 40+ years, but 2022 isn’t over yet. Inflation this year reached a peak of 9.1% in June, according to the U.S. Bureau of Labor Statistics, and hasn’t come down significantly since then.

Read article   See the full list of the Global 250 Food and Beverage Manufacturers.

What this means for consumers today is an increase in food prices not seen since 1979-1981. In July this year, food prices were up 10.9% year-over-year (YOY) from 2021, which is the biggest jump since May 1979. Prices for groceries increased 13.1% YOY, the highest rise since March 1979.

No matter how people buy their food—at the store, via e-commerce/direct-to-consumer (DTC), or through restaurants and foodservice—they are feeling the current pinch on their wallets. A recent survey by Vericast revealed 60% of shoppers are looking for more discounts and deals to offset inflation, with some shopping at dollar stores and other discount outlets rather than traditional grocery chains.

Consumers who make the trek to a traditional grocery store are more discerning than ever about how they spend their money. Research by The Food Industry Association shows 41% of shoppers are actively seeking less expensive store brands, and the Private Label Manufacturers Association (PLMA) says store brand sales were already on an upswing even before 2022’s inflation set in. PLMA reports store brands’ annual dollar volume increased by $1.9 billion in 2021, for a record $199 billion in total sales. 

Other inflation-inspired decisions by shoppers in 2022 include “trading down” from beef to less expensive chicken, cutting back on perceived luxury items like chocolate, and eating less to make grocery purchases last longer. Those hunting for deals on Amazon during its annual Prime Day sale bought more household items than previous Prime Days, according to CNBC, with Frito-Lay snack packs among the top-selling items. 

Price hikes and shrinkflation

For many of our Global 250 companies this year, inflation has been the proverbial double-edged sword: The cost of materials and ingredients has skyrocketed (if those ingredients are even available), which in turn leads to higher prices for finished goods. Some of the big players have been able to take advantage of the situation, though, gaining better-than-expected profits as their costs are passed on to consumers.

Those price hikes led to pushback from some major retailers, who threatened to stop carrying products they deemed too expensive. Kraft Heinz (No. 7 on our Global 250) had stopped supplying items like ketchup and baked beans to U.K.-based Tesco because the grocery chain wouldn’t sell them at inflated prices to customers. The two reached an agreement in July.

Read article   See the full list of the Global 50 Alcoholic Beverage Manufacturers.

“Shrinkflation” is one area where food manufacturers can make up for high production costs by slightly reducing the package size and/or volume but keeping prices the same—the reductions often go unnoticed by shoppers. “A 10% product size shrinkage is equivalent to an 11% price increase, but most people wouldn’t really think of it that way,” says Jeff Inman, professor of marketing at the University of Pittsburgh, in an interview with the Pittsburgh Post-Gazette

Since inflation is on the radar of many consumers in 2022, they’re noticing shrinkflation in their purchases. It’s so prevalent this year that there’s even a Reddit forum devoted to the subject with more than 36,000 members, who post side-by-side photo comparisons of original and shrinkflated products they’ve bought.  

Ingredient availability and costs

The top two brands on our Global 250 list this year (Coca-Cola and PepsiCo) each announced Q2 results in July that exceeded expectations for earnings and revenues but were tempered somewhat by higher operating costs. 

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