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European Food inflation? Looking ahead to Delhaize, Carrefour and Associated British Foods

Contributed by Trade The News

- Recently press outlets have reported cases of 'run-away food inflation' and hard-hit families unable to put food on the table, however reality is a bit more tempered. Supermarket customers in France and Germany have seen food prices rise only 13% since the financial crisis began in 2007, while the UK has seen a stiffer rise of a little over 30% (with Milk +31%, Bread +29%, Potatoes +32%).

- Western Europeans spend about 11-15% of their income on food and the UK spends only 9%. While this is considerably more than 7% of the US it pales in comparison of the 40-50% spent at the beginning of the 20th Century. Costs for health care and housing as a percentage of income have ballooned in the past years and may have skewed consumers' views of overall inflation. Talks of food shortages is at odds with reports that 30-50% of food purchased in the US and Europe are thrown away and record obesity rates worldwide.

- Overall food inflation in Europe has been increasing at a slower pace. While commodity costs for food suppliers were running around 10% a few years ago, it slowed to the upper-single digits last year and analyst see only low single digit growth in 2013. Forex impacts could also help curb prices as 50% of European food manufactures costs are priced in US dollars. The Euro has recently gained against the dollar and many bank analysts see an increased appreciation in 2013 towards the 1.35-1.40 level for the EUR/USD pair.

- European supermarket companies have struggled in the past few years as they have not been fully able to pass along costs. Their outlook is mixed with lower increases in cost offset by weak consumer confidence.

- Carrefour SA (CA.FR), Tesco (TSCO.UK ), and Metro AG (MEO.DE ) are the second, third, and fourth largest retailers in the world (behind Walmart (WMT)). These hypermarkets sell a variety of goods, but do a large business in food products. Delhaize Group (DELB.BE), Sainsbury's (SBRY.UK), and Morrisons (MRK.UK) are other large European retailers with major food sales.

- Metro AG (MEO.DE ) reported Q4 Rev €19.4B v €19.6Be today along with positive LFL sales for the first time in three years. The stock is trading up marginally in early trading. Tesco PLC is trading slightly lower after announcing a recall of beef products following discovery of horse DNA in said products. Delhaize Group (DELB.BE) analysts see Q4 Rev at €5.78B; Domestic LFL sales -0.9% y/y; International LFL sales +0.5% y/y; FY12 Rev seen at €22.77B and Carrefour SA (CA.FR) are set to report tomorrow Thu Jan 17th along with food processing and retailing company Associated British Foods PLC (ABF.UK).