The New 'Normal' Prices

Several buyers and suppliers I've spoken with over the past few months have mentioned they're holding out hope that the saying "what goes up must come down" will apply to seafood prices in the next year. But according to a report released late last week on global commodity food prices, no one in the food industry should hold their breath.

Food prices may come down from their current peaks, but the increases already seen in the real cost of food represent a permanent change, according to "Food and Beverage 2012 - a taste of things to come," from Deloitte Touche Tohmatsu, a worldwide network of independent firms providing auditing, consulting, financial advisory and risk management services.

The United Nations' Food and Agriculture Organization reports that the global food price index rose 40 percent in 2007, compared to only 9 percent in 2006. The shocking outcome of this has been seen at violent consumer protests around the globe. The increased cost of basic commodities and a heightened awareness of the security of the food supply could have a profound effect on consumer behavior, retail strategy and suppliers' response, the report notes.

It's no surprise that restaurants are struggling: I recently witnessed the closure of a T.G.I. Friday's and Chili's restaurant (both opened in the past year or so) close to my home. The consumer shift from eating out to dining at home means retailers will be forced to respond with a focus on lower-priced private-label brands and discount products and consumers will be shopping at lower-priced retailers, predicts Bruce Westbrook, Deloitte's consumer products consulting leader in the United States.

The rise in global commodity prices may be a silver-lining for seafood retailers, who have always worked on tight margins. Price inflation presents retailers with an opportunity to protect and enhance margins as consumers become more accepting of price increases, notes Pat Controy, vice chairman of Deloitte's U.S. consumer products leader. Retailers and suppliers must continue to differentiate their products from competitors to survive, adds Conroy.

So what goes up will not necessarily come down when it comes to food prices, a situation that retailers and consumers alike will struggle to deal with in the year to come.


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