July 17/Law & Health Weekly -- As higher commodity prices become the "new normal" rather than a temporary peak, there may be a greater impact on consumer behavior and retailer and supplier strategies than has been apparent so far, according to a new Deloitte report, "Food and Beverage 2012 -- A Taste of Things to Come." While current food commodity prices may drop from their current peaks, the increases already seen in the real cost of food represent a permanent step change.

Bruce Westbrook, Deloitte's Consumer Products Consulting leader in the U.S., said, "We are already seeing signs of higher food prices leading to a shift in purchasing patterns toward lower-priced private label and discount products and shopping at low-priced retailers. It could also result in a shift away from eating meals in restaurants and bars -- as was the case in the last economic downturn. In poorer countries, where governments are less able to afford food price subsidies, the increases in food prices are far more serious and have resulted in violent protests in parts of Asia, Latin America and Africa."

Retailers operating in price competitive markets such as the U.S. and U.K. face the dilemma of to what extent they absorb these increased costs. Westbrook said, "In recent years, price increases by retailers have required real product differentiation, strong brand equity, innovative products or services and a superior customer experience."

Rising prices also present growth opportunities for food retailers. "Consumers switching from eating out to shopping for food for home should protect growth. Price inflation also presents retailers with an opportunity to protect and enhance margins as consumers become more accepting of price increases," said Pat Conroy, vice chairman, Deloitte LLP, and Deloitte's U.S. Consumer Products leader.

From the July 21, 2008, Prepared Foods e-Flash