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The effects of the Ukraine war: groceries are becoming even more expensive

Ukraine war has an impact
Groceries are getting more expensive

It doesn’t matter whether you buy pasta, bread or coffee: you have to dig deeper into your pocket almost everywhere than you did a few months ago. The price spiral could soon turn even faster as a result of the Ukraine war.

Whether noodles, coffee, beer or toilet paper: there seems to be only one direction for the prices in supermarkets and discounters at the moment – upwards. And the war in Ukraine should give prices a boost again. “The increase in energy prices and logistics costs caused by the Ukraine war will make itself felt in people’s everyday lives – with every purchase in the supermarket or discounter,” predicted Boris Hedde, managing director of the Cologne Institute for Retail Research (IFH).

Because the prices would now rise even more than they did in the past. “It will be a challenge – especially for socially disadvantaged families.” Hedde is not alone in this assessment. Retail expert Robert Kecskes from the market research company GfK is also convinced: “The conflict will further increase the pressure to raise prices. Inflation will definitely be significant.” The chief executive of the German Retail Association (HDE), Stefan Genth, also warned that the war in Ukraine and the sanctions imposed as a result “could have a price-driving effect”.

The prices in the German food trade were already in motion before the Ukraine war due to rising raw material prices and energy costs as well as corona-related problems in the supply chains. According to the Federal Statistical Office for Food, consumers had to pay 5.3 percent more in February than twelve months previously. Price increases wherever you looked: Tchibo made coffee more expensive. Large German breweries announced price surcharges in rows, as did manufacturers of toilet paper and handkerchiefs. Beef went up in price enormously, as did poultry and tomatoes.

Energy costs make an impact

Rewe boss Lionel Souque complained at the end of last year: “There have never been so many demands for price increases from the industry as this year.” And that was before the Ukraine war. In the meantime, the situation is likely to have worsened noticeably for many manufacturers.

Because the global increase in energy prices triggered by the war not only makes heating your own four walls and driving a car more expensive. The production of many products from bread to detergent is also becoming more expensive. “Everyone works with electricity and gas – including Nestlé and Unilever,” emphasized an industry insider. In the case of meat, for example, the energy costs are included in the costs from the production of the seed for the animal feed through the entire value chain to the freezer in the supermarket. The industry fears that logistics costs will also increase sharply after the Russian invasion. “Manufacturers will certainly try to pass these additional costs on to retailers and consumers,” said Kecskes.

It shouldn’t be that easy for her. Because the large retail chains such as Edeka, Rewe, Aldi or Lidl are well aware that the price is likely to play a much greater role in shopping in the coming months than in the past. And they don’t want to undermine their own competitive position by making excessive price concessions to the manufacturers. The price negotiations between dealers and manufacturers have already been unusually tough in the past few months. Time and again there were temporary delistings and delivery stops.

Discounters and special offers

But even resistance from trade will not be able to stop the price spiral. Industry experts assume that the burdens from the interaction of higher living costs, the threat of back payments for heating costs and increased fuel prices could significantly change the shopping behavior of German citizens in the coming months.

While consumers flocked to supermarkets in large numbers during the corona pandemic and discounters lost market share, the trend could now be reversed again. “The expected price increases could change shopping behavior and ensure that more is bought from discounters again and that they regain lost market share,” believes Hedde. In addition, market researcher Kecskes predicts that consumers will again be more likely than in previous years to buy retailers’ own brands instead of more expensive branded products.

A small consolation for the plagued customers: there will still be special offers. Kecskes believes that there could be even more price campaigns in the future than in recent years because the competition for customers’ ever tighter household budgets is likely to intensify.

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