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Leading grocery retailers and food producers look set for a showdown with the Competition Commission over sharp rises in prices, which they say are justified by rising input costs.
In its latest Essential Food Pricing Monitoring report, the Competition Commission said retailers, processors and producers had passed on unjustified price increases on essential products such as sunflower oil and bread to consumers over the past two years.
The commission launched an investigation into “opportunistic price increases” during this period.
Casparus Treurnicht, a research analyst and portfolio manager at Gryphon Asset Management, said prices have not been coming down even though input costs have slightly moderated over the past few weeks.
Retailers have insisted that the consumer price hikes are unavoidable.
Food and clothing retailer Woolworths said it strived to keep its increases to an “absolute minimum [but] there are circumstances which often lie outside our control which have an impact on price adjustments”.
The retailer said there were numerous macro- and micro-economic factors that affect global supply chain costs and drive inflation.
“We will only accept a price adjustment as a last resort after exploring all avenues to prevent one,” it said. “Based on our long-term relationships with our suppliers, we work with them to best understand how we can hold off price increases.”
For its fashion, beauty and home division, Woolworths passed on price increases of 10.8% during the 26 weeks ended 25 December. Prices moved up 6.8% in its food business for the same period.
“This is notwithstanding the considerable disruption caused by load-shedding, which continues to have a pronounced impact in terms of foregone sales and increased costs,” Woolworths said in a trading update to shareholders.
Data from Statistics South Africa, released last week, shows that consumer inflation edged up in February to 7% year-on-year from 6.9% in January. The biggest driver was food and non-alcoholic beverage prices, which increased 13.6% year-on-year — almost a 14-year high.
Globally, inflation has risen over the past few years as a result of the Covid-19 pandemic. And supply chains have not recovered since Russia’s invasion of Ukraine in February last year. This has affected domestic chains. In turn, food producers’ costs have risen, pushing up the prices for consumers.
Asked when food prices could drop, Treurnicht said he could not make any predictions but added: “By the looks of it, the producers might have to carry more of these inflationary forces for the time being [instead of passing them on to strained consumers] up to the point where they do not make a profit anymore. Then you’ll see those costs being passed on fully to the consumer.”
Pick n Pay said its internal selling price inflation for the first 17 weeks of the second half of its 2022-23 financial year came in at 10%. In its trading update, it said the group selling price inflation was affected by its Boxer stores’ greater exposure to commodity categories, where inflationary pressure has been highest.
It did not say how much longer it intends to push prices on to consumers because it is in a closed period (the time between the completion of a company’s financial results and the announcing of these results to the public). But the retailer did add: “As always, we do everything we can to keep prices down for customers.”
Last week food producer RFG Holdings said its revenue grew by 7.4% for the 21 weeks ended 26 February, and that this was mainly driven by passing on 14.7% price increases to customers. RFG owns pie brands Today and Magpie, as well as Bisto and Hinds Spices.
“Management continues to make pleasing progress in recovering higher input costs from customers in most product categories, which has strengthened margins in the regional segment. However, the group is still experiencing inflationary pressures from higher packaging [cans and paper] and meat costs in particular,” it said.
Treurnicht said doing business in South Africa was expensive, including the need for electricity backups because of load-shedding, and food producers might have no choice but to raise prices to stay afloat.
“It is not only input prices that need to be taken into consideration. Investing in backup infrastructure is taking money out of the producer’s pocket as well. The consumer will be paying more for this at the end of the day,” he said.