Personal Finance

Food price increases slowing and settling, but at higher price point

Food price increases are slowing and settling down, but at a higher price point, which is bad news for consumers who already have to stretch their rands while the price is still not right for many South Africans.

According to the latest findings from NIQ’s State of the Retail Nation analysis for the second quarter based on its comprehensive Retail Measurement Service (RMS) shows that South Africa’s fast-moving consumer goods (FMCG) sector achieved R621 billion in annual sales in 2023, an increase of 13.5%.

These results unfold against the backdrop of continued global inflation, which has reached record highs over the past two years. However, despite South African Consumer Price Inflation (CPI) falling to 4.7% in June, food inflation remains notably high, surpassing 10% for twelve consecutive months and currently sitting at 12%.

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“The prevailing narrative is that decreasing inflation growth is great news and cause for celebration, but the reality is that we are dealing with a deceleration, not a decline, with food price increases slowing and settling but at a higher price point,” Steve Randall, commercial lead of the NIQ South Africa Consumer Panel, says.

 “When we asked consumers if they are changing to manage their overall expenses, 95% said yes, with more than half cutting back on discretionary spending. They are looking for the lowest possible prices and cutting back on discretionary spending where possible, which includes sticking to the essentials and their monthly budget.”

ALSO READ: Food production cheaper, but savings not always passed on to us

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Drinks are the stars

Against this backdrop and delving deeper into the performance of specific products, the service shows that non-alcoholic and alcoholic beverages emerge as the biggest success stories, with both categories managing to contain inflationary-driven price increases but still achieving solid growth effectively.

Randall says the liquor category stands out with a remarkable 27% annual growth in sales (12 months to end June 2023) compared to the year before. In the liquor category, beer, cider and premixed alcoholic drinks all demonstrated robust annual growth, further underscoring the strength of this segment.

Non-alcoholic beverages also did well, registering an annual sales increase of 16%, particularly in the energy drinks category, which posted an impressive growth rate of 25%. In comparison, soft drinks sales increased by 17%. Fruit juice showed a commendable but slightly less robust growth rate of 10%.

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In the staple categories, where inflationary pressures were more pronounced, maize meal, flour and bread all recorded substantial annual value sales growth figures.

For cooking oil, a product that has been a focal point of significant price increases globally and in South Africa, the repercussions of these substantial price hikes are now becoming apparent, with recent price declines seeing sales value growth remaining stagnant.

In addition, a direct month-on-month comparison reveals a 5% drop in sales between June 2023 and June 2022 due to decreased prices compared to the previous year, Randall points out.

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“Adding to the pressure in this product category is that consumers, in response to successive price increases, are now tending to purchase less volumes of cooking oil, potentially leading to a prolonged period of recovery for volume sales.”

ALSO READ: Food prices still increasing for poor people – food basket survey

Consumers are still watching their budgets amid food price increases

Randall says overall, it is clear that consumers feel more financially pressured compared to a year ago, but what stands out is their resilience. “Looking ahead to the next 12 months, it is evident that people are firmly committed to maintaining or even increasing their spending in essential categories.

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“The overarching trend is a significant shift in consumer spending from out-of-home activities to in-home ones, which is set to benefit several FMCG sectors, including fresh produce, meat, health and wellness and dairy.”

NIQ’s detailed analysis corroborates this realignment, with increased annual sales seen in supergroup categories such as kitchen and tableware (17%), cosmetics and fragrances (16%), personal care (14%), home care (14%), potato chips (21%), biscuits, snacks and confectionery (14%) and personal care appliances (14%).

There is also a small silver lining, Randall says.

“Our mid-year Consumer Outlook research indicates that South Africans feel that things will improve, with 43% believing they will be better off financially next year, 35% unchanged and only 23% feeling worse off. Part of this slightly more optimistic outlook is that 19% of more vulnerable consumers who experienced job or income loss feel they are now ‘back on track’.” 

However, he says, it is important to note that while consumers also indicate that they are willing to allocate more to consumer-packaged goods in the coming months, this does not imply that they are not cautious with their finances.

“The emphasis on essential categories reflects a thoughtful approach, as consumers remain mindful of their spending.”

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By Ina Opperman