The cost of living is continuing to rise, despite the fact that many consumer’s wages have been frozen for the past few years as a result of the economic crisis. This has had a knock on effect on the food and drinks industry and as the 2015 general election approaches, politicians are now getting involved in the issue.
How will this impact the industry though? What is to become of food and drink in 2014?
Impact on consumers
Even though the economy is beginning to recover, many consumers still haven’t seen their wages increase and it will still be quite some time until incomes catch up with the cost of living. Although the phrase ‘cost of living’ is related to a number of sectors, recent rises in essential groceries have had quite a big impact on consumers. For example, research from mysupermarket.co.uk found that the price of a loaf of white bread is rising 3.2 per cent a year and frozen meat is increasing by a huge 25.5 per cent. Overall, the Office for National Statistics says that food prices have risen 12.6 per cent above inflation for the last six years.
As a result, many families are having to cut costs. A survey by GoCompare revealed that 47 per cent of consumers think they can reduce their grocery bills – and the rising cost of living is their main concern in 2014.
Impact on the industry
If research is correct and people really are looking to squeeze their purses even tighter in 2014, the food and drinks industry will be affected in a big way. Industry experts have predicted that because of this change in consumer attitude, the sector will need to work harder at attracting consumer attention. For example, the recent trend in price comparison will continue, as consumers will be looking to get the best deals when it comes to brand and store choice. Price promotions will also remain big in 2014, so brands can attract customers to their products over cheaper alternatives.
It is also estimated that manufacturers will focus on the product’s price point, rather than the actual volume of the product being given away. To do this, brands will need to find new ways to turn a profit, which could include reducing pack-weight. Physical grocery stores will likely struggle in 2014 too, as many consumers are turning to the internet and this trend is not likely to slowdown any time soon.
How politicians will impact the industry
Food and drink industry leaders will be looking for additional support from the government. Despite the fact it’s the UK’s largest manufacturing sector, the trading environment will become tougher as consumer spending reduces. So industry leaders will be seeking to show the government just how big an impact it’s had on the economy, including what it’s done in the past to accelerate growth, provide jobs and change consumer’s lives.
It’s likely that politicians won’t need much help when it comes to recognising the importance and significance of the food and drinks industry though. Every political party will be fighting for the role of consumer champion and will attempt to out-do each other in terms of tackling the cost of living. Therefore, politicians will increasingly be raising issues about company profitability versus the cost of living pressures sustained by customers.
This has already been seen with Labour’s promise to freeze energy prices should they win the election next year. In fact, Ed Miliband has already announced he and his party are focused on reducing the cost of living this year, a pledge that is sure to be important to many voters.
However, a squeeze on company profits in favour of consumers in an already difficult economy would surely put a lot of pressure on the food and drinks industry – which is likely why it is seeking support from politicians. Research from Which? has shown that consumers are willing to put up with rising food costs, but rocketing prices are causing stress. Worryingly, 29 per cent of consumers have said they have struggled to feed themselves or their family – a statistic which politicians surely won’t be able to ignore.
On the positive side, the food and drinks industry is a sector which has continued to perform well during the economic downturn. If it can survive and turn a profit during tough times, it can surely continue its success as the economy recovers. Economists have predicted that the cost of living will reduce this year, which will hopefully improve consumer spending further. Wages on the other hand aren’t set to increase this year, so realistically, people’s fortunes might not change much at all. Only time will tell how it impacts on both consumers and businesses.