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February 28, 2022

The short answer is yes.


There are a number of factors impacting the value of the food we produce. It is one thing to consider costs and complexities of producing food rising, but it is another to see customers and consumers put more value on food. 


There is no argument that costs of producing food are rising. Inputs such as seed, fuel and fertilizer are increasing to new heights for many items. Labour is hard to find and costs more plus most forms of packaging are getting more expensive. As producers prepare for the 2022 growing season there are very few costs staying the same or decreasing.


All of these factors are driving up the cost, but it does not lead us to the automatic conclusion food is worth more. Ultimately our customers and consumers decide if it is worth more. 


Why customers believe it is worth more


To maintain a return on your investment, you need to get a higher price when your costs go up. Your customers, retailers, wholesalers and distributors will be the people you need to convince. Right now, they do put more value in the products they want.


We have been through two years of disruption for the world and the food industry. Your customers have been challenged to predict demand and find products for their stores. Sales increases are great, but when they struggle to forecast them and cannot supply the demand, it is very frustrating. A retailer’s world is best when they have strong sales that have been predicted, so they can find ample supply of good quality product. You just have to visit any store to see the inconsistent in stock position. This is impacting the value of the food you supply.


If you can figure out how to maintain a high service level (cases delivered divided by cases ordered) they will see more value in what you do.


Consumers have been vocal in their expectation for more food produced closer to home. Retailers, the good ones, respond to changes in consumer demands. Local grower programs have been evident for years but there is more than signage to these programs. Retailers do want Canadian products and they will place more value in products they can count as local.


There is a lot of attention in the media on food inflation. When it comes from many sources people believe it. Your customers are hearing from economists and they are hearing it from all of their suppliers. The message is consistent and consumers do not like it but they accept it. It seems the cost of almost everything is going up and food is no exception. When your customers hear it from every angle they begin to accept it and see the value as increasing. They do not like it because they believe if the retail price has to go up the volume will slow down. This is not always true, but it does happen and another consideration is people trade down within the category. In produce, consumers might shift from fresh fruits and vegetables to canned or frozen. 


Why consumers believe it is worth more


The pandemic has changed consumer’s perception of food. Most Canadian consumers would not have experienced widespread out of stocks in food stores. Prior to 2020 they were used to finding grocery stores and markets full of products. Some people really did not spend a lot of time thinking about the supply of food and food security was a term that was not common.


Since we have experienced out of stocks for a variety of reasons, they are now much more interested in finding an ample supply of food in the store or the market when they want it. They put more value in the in-stock position.


The awareness around food has also increased consumers’ desire to understand more about where it is coming from. Some of this is related to in-stock position but some of it is also related to supporting a strong viable food industry. Consumers do understand we need this and one way they can play a role is to support the products at the cash register. It is important for suppliers to share where the products are coming from and make it easy for people to see this information. This can be reinforced on social media, mass media and packaging. 


Consumers are putting more value in food that originates close to home. 


One trend that has remained stronger than I would have anticipated is sustainability. Throughout the pandemic this has continued to influence consumer behaviour. If sustainability is part of your story and you do a great job telling the story, some consumers will put more value on your products.


Consumers are reading the same media articles about food inflation that your customers are. They might not be as close as category managers to the price of packaging or inputs, but they have been told repeatedly the price of food is going up. It is not unexpected when they get to the store to see retail prices they did not see last year. They might not like it, but they are not surprised by it. Where there is the expectation it is possible there will be less trading down within categories because people just see the price and what it will cost them to eat. They will expect food to cost more.


What this means for suppliers


Food will be worth more in 2022, because our customers and consumers will be willing to pay more. Yes, it costs more to produce it, but it is worth more because they are willing to pay more.


Producers should focus on communicating the value repeatedly to customers and consumers. They do need to be informed about cost increases, but they also need to see the value. They will pay more when they agree in the value.


This is also a time to get the right price, not an inflated price. Retailers understand costs are changing and they need viable suppliers. They will become very difficult to work with if they get the impression some suppliers are taking advantage of the situation. If this happens, they will push back on cost increases for all suppliers. Communicate with your customers and find the right price to ensure your business remains viable and they stay competitive.

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Submitted by Peter Chapman on 28 February 2022