Brian MacSweeney, audit partner in KPMG’s Food & Agri team, spoke to Ed Burke in the Irish Examiner, answering the key questions that food producers and consumers are asking about the changing marketplace, as we battle inflation and rising input costs.
How strong is the desire among Irish grocery consumers to buy sustainably produced food and drink products, as shown by KPMG's research?
We commissioned a consumer survey in March this year and discovered that 6 in 10 respondents rate sustainability credentials as important when buying food items, but price was the number one factor for most consumers. At the time the survey was taken, food prices had been rising for a sustained period and the Russian invasion of Ukraine had just started.
Eight months later, food commodity prices are beginning to retreat from their June peak, however high inflation and the cost-of-living crisis continue so there is more competition for consumers' share of wallet for the essentials. Price is more important now than in March to consumers, but consumer preferences are a trend, and this will correct over time. The key underlying trend from the March survey is that consumers want sustainable produce, but price is a challenge.
How can food producers and retailers work with this 'green' preference as rising inflation impacts upon people's purchasing choices?
Ireland’s food and agriculture companies have always successfully competed higher up in the value chain despite the prevailing economic conditions. The current conditions are very difficult for everyone, right from the farmer and producer to the consumer. For the producer, even though selling prices are good, costs including feed, fertilizer and fuel have spiralled.
Competition for the consumer's share of wallet means that preferences for value and price supersede sustainability and convenience. When we talk to our clients, it is clear that the industry is very focused on ensuring food security and affordability for all. They are balancing this while continuing to invest for the longer term by tackling key issues like carbon emissions, food waste, circularity of their processes and digitalising their supply chains.
Recent KPMG surveys suggested that people are willing to pay a higher premium for quality, locally sourced food and drink. Is this a recent or historical trend? And do you think it will hold into the future?
They are, and in normal circumstances given the choice people always like to go for premium and quality food. The success of the Irish food industry is a testament to this.
We found out that 77% of consumers prefer to buy fresh fruit or meat in-store so they can examine the quality themselves and 44% don’t trust the shelf-life of food products purchased online. This is indicating that premium and quality are key.
Clearly with a cost-of-living crisis value will be a more prominent consideration for consumers. Everything comes in cycles, and in the longer term, we see the tendency for premium, sustainably produced and quality food to prevail. This gives Ireland a competitive advantage in international markets.
What role does brand awareness play in influencing consumer choices?
When we asked consumers about branded versus supermarkets’ ‘own branded’ food products there were contrasting views in relation to the perception of quality. Just over 2 in 5 believe there is no quality difference, 1 in 5 said that they tend to favour buying branded products while 2 in 5 have no preference whatsoever. If we asked the participants the same question today we may get a response more favourable to own brands given the cost of living crisis.
KPMG studies have shown around a 50:50 consumer focus between price pressures and health considerations. How can food producers and retailers prepare for this balance being tested during a sustained period of inflation?
In our March survey, health and nutritional credentials were the highest second factor behind price for consumers when purchasing groceries (and ahead of sustainability). It is clear the pandemic caused consumers to prioritise wellness through diet and proactive healthcare.
Food supplements and a better diet tend to be more expensive than cheaper processed foods, so it is reasonable to expect this category is being challenged during a period of higher inflation, so it remains to be seen how healthier food options will be affected.
How do these various factors play out in food service sectors? Are there similarities and differences between consumer choices in restaurants, hotels, and takeaways?
Interestingly, of those surveyed, 1 in 3 order takeaways at least once a week, versus 1 in 10 dining out. Unsurprisingly younger consumers are more likely to both order takeaways and eat out frequently. In the budget just gone, the government announced that the 9% VAT rate will not be extended beyond February next year. It will be very difficult for the hospitality and tourism sector to absorb this cost with their own inputs continuing to rise, so price increases are inevitable.
How that impacts consumer spending waits to be seen, however, our survey respondents have already indicated during the summer they are reducing their discretionary spending due to inflation, likely only to be exacerbated now that we’re in winter and energy bills are set for a sharp increase.
Do KPMG surveys showing a marked consumer preference for in-store food and drink purchasing over online offer hope to the food sector going forward?
Even during the pandemic restrictions, when online shopping was at an all-time high, there was still a preference for buying food and drink products in-store rather than online. While online shopping grew exponentially across the board, this trend hasn’t yet penetrated the food market to near the same extent.
People want to look at and touch the products before buying them. There’s also a perception that the sell-by dates of products bought online are not as good as when you shop in-store. The trend towards online shopping has softened slightly with restrictions lifted, with many now utilising both options, but we expect the trend towards online shopping to grow in the longer term.
It remains to be seen whether this will be the case for food shopping, however, where we have not yet seen consumers make that transition to anywhere close to the same levels as with other products. A key factor is the availability of products by delivery which in Ireland is not yet near as advanced as in the UK.
This article originally appeared in the Irish Examiner, as part of their ‘#FOODINFLATION’ series, and has been reproduced with their kind permission.
Get in touch
If you have any queries on the topics discussed above, and their impacts on your business, please contact Brian MacSweeney of our Food & Agribusiness team. We'd be delighted to hear from you.