Hot demand in supermarkets could flow to higher-end items

Hot demand in supermarkets could flow to higher-end items

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Retail sector coronavirus impact mixed - and volatile, say analysts

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HIGHER demand for food at a retail level is not only expected to remain in play for some time but it should soon start to flow through to the more premium products.

As families balance savings from entertainment, eating out and food service, and factor in government stimulus package funds, the supercharged supermarket demand should extend to higher-cost supermarket items, analysts believe.

In research on the estimated impact of COVID-19 on Australian agriculture, Rural Bank found the domestic and international landscape was changing profoundly and while there had been an initial boost in demand for agricultural produce, the broader landscape remained uncertain.

The report says agriculture's essential service status safeguards a majority of the sector from the most extreme impacts but the situation is changing rapidly and most impacts are not yet fully understood.

In the retail sector, most analysts have pointed to the medium term increase in demand offsetting reduced demand from food service for many agricultural products but there have been shifts in the type of products sought.

Lower-priced foods have been favoured. Mince was the first fresh food to be swept up in panic-buying, for instance, and red meat processors have reported far greater demand across lower-value cuts.

Josie Zilm, Rural Bank regional agribusiness manager in southern Victoria, said there was a time limit to demand for the frozen, canned and packaged staples that were the initial focus for panic buying.

"Once consumers have filled their pantries and freezers, that demand has to ease," she said.

"It may even curtail, once saturation is reached."

However, like everything affected by coronavirus, retail demand is highly volatile.

On the one hand, demand may favour lower-priced foods into the medium term as consumers respond to unemployment and weakening economic confidence.

"On the other, as people strike a balance between not spending on clothing and entertainment, we could see the more luxurious items in supermarkets eventually experience higher demand," Ms Zilm said.

The Rural Bank report said while social distancing measures were having a significant impact on food service channels, how quickly the service could find a 'new normal' would be something to watch.

Ms Zilm said once the economy and living arrangements returned to normal, it would be a novelty to return to cafes.

"However, we don't think we'll see the levels we experienced prior to this because there will be a degree of caution," she said.

Higher-value restaurants are likely to be slower than others to re-open, Rural Bank believes.

"The rush to get out of the house will push demand through some food service channels up very swiftly but the levels of spending on high-value foods and clothing like fine wools will be curtailed for quite a while."

Rural Bank also sees export demand has having a mixed impact, with a weaker Australian dollar broadly supportive.

"Ag is still open for business but there is a change in the type of product in demand," Ms Zilm said.

"Abattoirs, for example, are adapting to demand by refining the way they use the carcase - focussing on lower-end cuts.

"Consumption remains but the price you can command for certain products may diminish."

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