With food inflation in the UK remaining stubbornly high at 18.4%, supermarkets need to invest more strategically in their supply chains to bring it down, says international procurement and supply chain management consultancy INVERTO, part of Boston Consulting Group.
Sushank Agarwal, Managing Director of INVERTO, says that many of the food products still seeing the highest levels of inflation are those where supermarkets have traditionally only had ‘transactional’ relationships with suppliers. These relationships need to become more ‘strategic’ in order to address inefficiencies, improve productivity and cut waste, to bring prices under control.
These products include*:
- Eggs – 37% inflation
- Low fat milk – 33.5% inflation
- Cheese – 30.6% inflation
- Yoghurt – 23.4% inflation
Says Sushank Agarwal: “For many years, supermarkets have procured a lot of staple foods in a very ‘transactional’ way – based mainly on price, with short-term contracts. That resulted in suppliers not being able to invest in their businesses, which is one reason why food inflation is not going away.”
“Along with the effects of the war in Ukraine, geopolitical tensions affecting global supply chains and the UK’s labour shortage, the inefficiency of some food producers is the fourth major component of food inflation.”
“Farmers cannot be blamed for not investing in automation and increased efficiency when they only had short-term contracts at minimal margin. That limited their ability to re-invest profits . Supermarkets need to move away from this model and towards a more strategic approach where they partner with suppliers to deliver long term mutually beneficial relationships.”
“That means not only working with farmers to increase their yields, but also with their supply chain – packaging, feed producers, waste handling and transportation may all need to be addressed. Supermarkets should look at the entire supply chain as being in partnership with them.”
“Food producers will only be able to make those investments if they have longer-term certainty over their income. That means longer term partnerships, not just three months commitment.”
* Source: Office for National Statistics
