Through a special arrangement, presented here for discussion is a summary of a current article from Frozen & Dairy Buyer magazine.
Most retailers expect decreases in frozen/dairy margins of between one percent and three percent in the next 12 months. Perhaps not so surprisingly, most manufacturers see the reverse.
That's at least according to an informal polling conducted by FD Buyer, including beaucoup hours spent on the phone and blasting out e-mail surveys to retailers and manufacturers, to get a feel for what we might expect in the year ahead.
It's important to keep in mind that our average margin erosion of 1.4 percent expected by stores includes the 40 percent of respondents who expect no change in margins.
One major retailer, who expects a two percent decrease, says that deflation in some categories early this year allowed margin enhancement, but he's not optimistic about the rest of the year. "We're starting to see more cost increases, and when that happens, we tend to get margins compressed, since we can't pass on increases as quickly as we get them."
Another, who foresees a three percent drop in frozen food margins at his chain, cites "extreme competitive activity" in his market as Walmart and Kroger duke it out on price. Others single out Winco and Aldi as taking aggressive stances that cut into margins.
Chains with a big enough budget to implement price optimization programs see some light at the end of the tunnel, but as one points out, "It's not a pretty picture. Highly price-sensitive items are dropping down, and of course that's where the volume is. We can't get it all back, and so we just have to accept that you can't make grosses in frozen that you are used to seeing."
Manufacturers surveyed expect retailers' margins in frozen/dairy foods to increase by 2.5 percent in the year ahead. Personally, I attribute this to "the grass is always greener" on the other side of the fence syndrome. Many retailers and vendors I speak with believe that their "partners" are gin-swilling cheats getting rich at their expense.
I reached out to the typically-optimistic Dan Raftery, president of Raftery Resource Network, to get his take. Unfortunately, he sided with the retailers.
"I expect margins to go down, and not just in frozen and dairy foods," he opined. "Manufacturers have been holding their prices back for some time now with package changes, reduced weight, changed formulas and so on, and they have no choice but to raise prices as food inflation hits everyone across the board. It's just a matter of time."