The real impact of food inflation

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FIFI PETERS: It’s around dinnertime for most people and probably the right time to talk about what is happening with food prices. We have seen that the cost of food is starting to come off its highs. We heard from Statistics South Africa yesterday that food inflation had slowed in June to 11% from a high of 14% in March. Today we heard from the South African Reserve Bank that its forecast for food inflation this year had also been lowered to 10.3%, although the bank noted that prices still remain high.

But to tell us about pricing trends and what food prices are doing over at Food Lover’s Market, I’m joined by CEO Travis Coppin. Travis, thanks so much for your time, sir. So some relief on food prices according to some of the national statistics, according to what our Reserve bank is saying. Is the story the same in your stores?

TRAVIS COPPIN: Hi, how are you?

FIFI PETERS: I’m wonderful. How are you?

TRAVIS COPPIN: I’m very good, thanks.

FIFI PETERS: Is this you teaching me manners? I do apologise. [Laughter]

TRAVIS COPPIN: A little bit. I think the story is reflected a bit the same in our numbers. We’ve actually seen deflation in meat for June – and actually for our financial year which started in March. And then with our fruit and veg, which is obviously a large part of our business, veg is sitting at around 14% for the year and I think 9% in June, and fruit’s at about 1% in June and 1% in the year. Our grocery business is sitting at around 7%.

Read: Relief as Reserve Bank holds rates steady

So our internal inflation rate for the year is at around 5% on selling price to the consumer, and it looks like we’ve kind of tracked along [with] Stats SA, just at slightly lower percentages.

FIFI PETERS: Meat getting cheaper – is that a good thing, or is that a sign of consumer stress?

TRAVIS COPPIN: I think it’s, unfortunately, a bit of both. It’s a good thing that it is getting cheaper. It was so expensive that we saw a huge drop in volume last year, especially on the beef side; and I think all farmers want to sell a lot of beef. So with where the beef prices are now we’ve seen quite a huge uptick in our volume. I think our beef volume is up year to date around 18%, 19% in volume, and I think the beef price is down for the year significantly – around 5%, 6% in our business.

So I think it’s a good thing. More people can buy protein.

FIFI PETERS: Yes.

TRAVIS COPPIN: Or afford protein.

FIFI PETERS: Yes, most certainly. I read an article [in which] you said that now your load shedding bill is a lot higher than your rental bill. Could you just add some colour there? Correct me if I’m wrong. And what does that ultimately mean to the other cost pressures you are experiencing as a business?

TRAVIS COPPIN: Yes, our energy bills are not just [in terms of] load shedding. If you take what it costs us for total electricity now in a year, it is probably three times higher than it was 10 years ago, and it’s now higher than the rent we pay annually. A large portion is due to load shedding.

We spend up to R500 000 a day on diesel when load shedding gets rough, at around Stage 6.

Obviously, that goes through the entire value chain. So it starts at, I mean, farmers pumping water. Then, say, you’re buying Simba chips and it goes to manufacturing. They must run generators. And just the cost to generate power yourself is significantly higher than what Eskom would charge. That just keeps getting passed on along the chain.

FIFI PETERS: Travis, we also got the sense from the Reserve Bank earlier on today that we’re not quite out of the woods yet when it comes to inflation, specifically when it comes to food inflation.

Earlier on we spoke to an economist and he was talking about Russia having now pulled out of this Black Sea grain deal that allowed for the passage of wheat and grains – and all of that from the Ukraine – to flow through to the rest of the world a lot more easily without disturbing prices. He was saying that we need to watch what happens there with Russia now having quit the deal.

Read: Wheat rises 9% as Russia issues warning on ships headed to Ukraine

The Reserve Bank was talking about El Niño and what drought in the hotter temperatures could potentially do for food prices.

What’s your take? Do you think we are out of the woods? Do you think we’ve reached the peak in terms of food prices, or are you also still worried about how [these things] will play out in your stores in future?

TRAVIS COPPIN: Honestly, I’m not really sure how material the Ukrainian wheat price is. I know it’s a commodity, but I’m not sure how material it will be for our local market.

In terms of whether inflation is done, a big driver of inflation right now is load shedding, and it seems to be a lot less severe than all of us actually predicted. A lot of us thought in winter we’d be sitting at Stage 8 almost every day. Thankfully we’ve seen it a lot lower than that. I think you’ll now see that coming straight through food-inflation prices, especially in the manufacturing environment where you’re paying R8/kWh the second a generator [starts] running, versus anything up to R1/kWh from Eskom.

So my gut is I think we’ve seen the worst of it. Unfortunately, consumers are still under significant pressure, so there’s going to be a price war among retailers I believe.

Read: Food producers warn of higher prices as infrastructure crumbles

FIFI PETERS: That is actually what I wanted to ask you, because yesterday we had some retail sales – another form of national statistics – coming out as to what the picture looked like in June, the sixth consecutive month of decline [in food prices]. Actually, people are being very selective about how they buy food, where they buy food, how much food they are buying. In the past 19 months, when interest rates rose to the degree that they did, [that] squeezed the consumer pocket a bit on top of the other costs that consumers and households had to face.

How have the shoppers, the Food Lover’s consumers, shown up? And what kind of pushback as a grocery chain have you also received in some product categories where you try to increase prices to keep up with your own costs but consumers say no.

TRAVIS COPPIN: That’s a very good question. In my time of being smart enough to understand that whole environment, I’ve never seen the consumer under more pressure. I’m quite young, so it’s probably in the last 15 years of my life I’ve never seen our consumer under so much pressure. I really believe it has a lot to do with the cost of living having gone up due to food being more expensive. The cost of energy is more expensive. Interest rates have gone up. Diesel is more expensive.

So it’s really been tough on all fronts, and we’ve definitely seen that in certain examples. The second that certain products get over a certain price point people just stop buying them.

If you look at cheese, for instance, or really find an alternative, you really will seldom find cheese at under R100/kg, whereas five years ago we would sell cheese at R50/kg [and we were] selling much more five years ago.

We’re now selling much less bulk cheese purely because the pick-up price has become so expensive. You can buy meat instead of cheese.

I think another example is fruit and vegetables. Avocados and tomatoes, if they become extremely expensive and people start selling avos at R30 an avo, then people just stop buying avos. They switch to something else until avos are affordable again. So I think there’s severe pressure on price points and pick-up prices at the moment.

FIFI PETERS: What you’re talking about in terms of meat – it’s great for all the ‘banters’ out there, and not so great for vegetarians, it would seem.

Travis, we’ll leave it there. Thanks so much for your time. Travis Coppin is the CEO of Food Lover’s Market.

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