The peak of inflation in France is still a long way off, and distributors and manufacturers fear that another increase of nearly 10% will be added to this figure, which will raise the price increase to 20% at the end of 2023 since inflation began in the spring of 2022.
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France: a new rise in prices looms on the horizon and great social repercussions
Annual price negotiations have begun between distributors and food manufacturers in all French sectors, while inflation on the shelves averaged 12% in October over one year and could reach 20% since prices started to rise. Annual tariff negotiations are expected to be more tense than ever.
Peak inflation is still a long way off. In October, the average price of food products was 12% higher (official figures) than in the same month last year. Inflation is likely to rise further in the coming months. Distributors and manufacturers fear that another increase of about 10% will be added to this number, which will raise the price increase to 20% at the end of 2023 since inflation began in the spring of 2022.
The potential outcome of these discussions, which promise to be more tense than ever, discourages supermarket customers. It is likely to lead to an increase in prices. “In 2022, the negotiations were mainly aimed at passing a price hike in raw materials, and we are now preparing to face a second wave of inflation, triggered by higher energy prices,” explains Dominique Schilcher, President of Système U.
Until December 1, manufacturers had to send price lists and general conditions of sale to the major brands’ buying centers. “Demands for increases vary between 10% and 25%, and this is what worries Jacques Cresel, General Delegate of the Federation of Trade and Distribution (FCD). If we combine these requests with the increase in costs that distributors face, we will end up with a price increase for 2023 that is greater than that of suffered in 2022. We would need a 5% to 10% increase in rates just to offset the tripling of the power bill for the signals.”
In 2022, manufacturers and distributors share the burden of rising commodity prices. This time, everyone is hit hard by the energy price hike. “We can no longer get out of the fog,” notes Jacques Cresel, and the negotiations are expected to be particularly tense, with everyone’s room to maneuver reduced to a trickle in recent months.
The major manufacturers, grouped within Ilec, are asking for a price increase of 12% to 14%, far exceeding the 8% already requested since March, following the outbreak of the war in Ukraine. “But the needs are much higher,” says Richard Banqueault, General Delegate of Ilec. After a decade of deflation that eroded its profitability, then more than a year of rising costs that moved it to just 40% of its prices, manufacturers have fewer margins to nibble.
Distributors are no better off. A store makes an average of 2% net profit. When the energy bill is multiplied by two, which is not the worst case scenario, this result still tends to be halved. Added to this is the increase in wages, which can represent an additional expense of €100,000 for one shop.
In this context, manufacturers and distributors are trying by all means to reduce their costs. These adjustments are made at the expense of consumer choice. Manufacturers rationalize their production by limiting the number of references. They prefer the best sellers, and cut off the ones that are no longer profitable. Distributors reduce diversification to reduce their logistics costs. “There will definitely be a break during these negotiations,” said one observer. It’s a safe bet that distributors will favor one supplier over another, in order to offer more quantities in return for a discount on the price.
Distributors fear the devastating impact this new wave of inflation will have on their sales. Consumers are already abandoning fresh produce, which is becoming too expensive. According to the FCD, purchases of beef decreased by 12%, purchases of fish by 20%, and purchases of fruits and vegetables by 8%. The number of products purchased decreases. Jacques Cresel appeals: “The state must help us put an end to the energy price. If we are heading towards inflation of 15%, that will have great social repercussions, and the decline in consumption will be very strong. This is all the more true as state aid to households will decrease in Next year.