Time to plan for slow recovery

02 February 2012
Time to plan for slow recovery

Food inflation is likely to decline rapidly over the coming year, says consultant Séan Rickard. He predicts that the worst is over for hospitality businesses

We are currently fed a constant diet of bad news regarding the economy but it is important to remember that food is more stable and sustainable than the rest of the economy.

That said, after more than 30 years of steadily improving affordability - that is to say that real food prices have risen slower than real consumers' expenditure - we have entered a new era in which food affordability has declined. Although now starting to improve, it will be several years before we return to the pre-2007 levels.

The good news is that food inflation is now going to decline rapidly over the coming year; cereal prices are already falling and the rate of increase in prices of meat and dairy products will soon start to moderate.

Unfortunately, real consumers' expenditure is being squeezed by the overall lack of growth in the economy combined with increased taxation. This will continue to constrain improvement in food affordability.

What we need is economic recovery both here and in Europe. That is likely to follow the financial markets endorsing some relaxation of the unprecedented austerity measures now being applied.

The essence of any businesses strategy must be to understand the proximate external environment - and that means planning for a slow recovery.

Although food has become relatively more expensive, there are many other factors - including lifestyle - that will continue to drive the trend towards eating out. But consumers are now much more focused on value: price and differentiation are key. The sustainable way to control prices is via investment in scale and technology and successful differentiation requires market-led innovation.

The worst is now over and your future will depend not only on recognising how the market is changing but also having the resources and capability to respond.

 Séan Rickard was the chief economist at the NFU from 1984-94 and has recently retired from the Cranfield School of Management to concentrate on his consultancy business as an independent economic analyst

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