Distribution enters competition in the face of falling inflation | Companies

The food distribution kicks off the year with intense promotional and discount activities. The most revolutionary movement was Carrefour’s initiative, which promised permanent price reductions on up to 500 of its white label items. Another step compared to what some of its competitors have taken, once again dusting off their proposal posters…

The food distribution kicks off the year with intense promotional and discount activities. The most revolutionary movement was Carrefour’s initiative, which promised permanent price reductions on up to 500 of its white label items. Another step compared to what some of its competitors have taken, who have once again dusted off their proposal posters in view of the relief symptoms caused by food inflation.

Besides the French group, companies such as Dia, Alcampo, Eroski, Consum, Ahorramas and ultimately most of the sector’s operators combine offers: from hundreds of products at the price of one or two euros to promotions on buy three items and pay two, among others actions.

“Most of the raw materials are falling. And if costs go down, we will have to reflect that in prices,” business sources explain, also pointing to the pressure they feel they are under as the point of contact with customers, which is undermining their image. in front of them, towards them.

Consequently, the distribution carries with it the need to convey a message of lower prices, which was also highlighted in negotiations that took place this month with manufacturers over supply contracts in recent months. “January is always a month of tension, but this year it has become even more intense,” confirm sources consulted.

The food and non-alcoholic beverage inflation rate was 7.3% in December, half the rate at the start of 2023. Although it was still significantly ahead of the overall consumer price index (3.1%), the distribution uses this progressive refusal to defend that they act on prices whenever possible.

Year of promotions

“We expect higher levels of promotions this year,” says Patricia Daimiel, CEO of NIQ (formerly Nielsen) Southern Europe. A trend that began in the second half of the year, after prices reached a certain stabilization point after several months of continuous growth.

“Distribution in Spain is very competitive,” says Daimiel, forcing operators to respond to the commercial movements of their competitors. However, the expert excludes that Carrefour’s move could provoke a price war, which in all directions will lead to a fall in prices for an indefinite period.

“Distribution is still suffering from profits, but it has to deal with the need to strengthen its price image. “We are at a very interesting moment for the sector,” analyzes Bernardo Rodilla, head of retail at Kantar Worldpanel. They coincide, he explains, with a context of slowing inflation and with consumers still very aware of price as a deciding factor when choosing between one supermarket chain and another.

“A year ago there were not many opportunities to implement such initiatives. Leadership in price reduction messaging is important when it comes to winning the battle for consumer perception,” adds Rodilla.

An example of this is Mercadona. The company, an industry leader with a share of more than 25%, announced in April last year a final price reduction of up to 500 items. It did this during a period of stagnation and even loss of quota compared to some of its competitors. From that point on, the trend reversed and the year ended with an increase of two points compared to what it was then. “This is not the network that raised prices the most, but the one whose image suffered the most. And after this movement, it ended the year as the network with the largest share,” says Rodiglia, who, based on this example, returns to the current situation: “The focus will again be on share. And that puts pressure on the price,” he adds.

“Messages are a lever for consumers to respond. We all have prices in our heads,” says Patricia Daimiel. “One-off initiatives can lead to increased traffic to stores, leading to increased repeats. We have become less loyal. Therefore, companies must be cohesive,” he concludes.

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