Rising energy costs likely to impact frozen food specialists more than ambient retailers: Moody

Rising energy costs are likely to impact frozen food specialists harder than other grocers, while retailers that specialise largely in ambient products are expected to see less impact, stated a new report from Moody's.

According to the report, rising energy costs will hit frozen food specialists hardest, refrigeration costs make up around 73 per cent of a grocery retailer's electricity consumption, far higher than lighting (7 per cent), ventilation (6 per cent) and cooking (6 per cent), with certain retailers more exposed than others in this area.

Aside from the impact on retailers, Moody's also expects fresh food prices to rise further this winter, as the cost of heating energy-intensive greenhouses will continue to increase.

According to ABN Amro, energy costs represent around 20 per cent to 30 per cent of Dutch greenhouse growers' costs, with greenhouse operators fearful over the impact that high gas and electricity prices will have on their operations.

Coupled with the influence that higher fertiliser and transport costs are having on food prices, an increase in fresh food costs will likely weigh on grocers' margins and credit quality, because steep increases in prices will be difficult to pass on to end-customers, Moody's said, particularly as consumer purchasing power is also deteriorating.

“Exposure to energy price increases also varies depending on retailers' ability to absorb the cost,” the report said. “Everything else being equal, companies with narrower EBITDA margins like UK grocers Wm Morrison Supermarkets Limited and Bellis Finco plc (aka Asda) will find this more difficult.”

The report comes weeks after it emerged in British Frozen Food Federation (BFFF)’s Conference 2022 that frozen food may be cheaper, more sustainable, convenient and have a longer shelf life than its chilled counterparts but there is still a perception it is of inferior quality.

. “A barrier to frozen food is the perception of quality. It is also [situated in] a cold aisle, it is difficult to see the product and there is a lack of freezer space in homes,” David Wright, a marketing effectiveness specialist at market research firm IRI, said.

However, come experts feel that the current cost-of-living squeeze will give a push to frozen category.

“Both strugglers and the cautious switch to frozen food,” he said. “We believe now is the time for frozen food. There has never been a better time to capture the opportunity but we will have to work really hard [to do it],” Shaun Smith, UK sales director at Birds Eye, owned by Nomad Foods – Europe’s largest frozen food manufacturer, said at the event.