He predicted that the profitability which it has enjoyed during recent years will not last for the foreseeable future.
The market was seeing falling volume sales and the supermarkets could no longer command the same sway over food manufacturers, he said. The change reflected the adverse economic climate, with discretionary income having declined for the past three years.
New behaviours
Consumers were learning new behaviours, he said, such as reducing wastage, shopping around for deals, cooking from scratch and trading down. They would not necessarily abandon those habits when the economy picks up.
"For suppliers [manufacturers], this is a new industry to the one of the past 30 years. Their customers are less profitable and therefore less powerful."
Supplier investment in promotional activity and price cuts no longer brought the sales uplift of previous years, or would be at the expense of volumes with another customer.
For the first time in his 30 years experience of the food industry, supermarkets would be forced to fund their own price reductions by reducing their margins, rather than turning to suppliers for a better deal, said McCarthy.
“It is a situation that we have not seen before, the total industry volumes are going backwards with declines in consumers' real income. Market shares are circulating around, with the most disloyal customer base ever,” he added.
Julian Wild, food group director of commercial solicitor Rollits told FoodManufacture.co.uk that with suppliers under intense pressure and supermarkets such as Tesco and Morrisons feeling the squeeze, it was time for a change of approach from the supermarkets.
“You are seeing suppliers under enormous pressure. The situation on liquid milk is just an accident waiting to happen. Iit is being sold as the ultimate loss leader at ridiculous prices compared to soft drinks for example and is just not sustainable.”
Big four supermarkets
The big four supermarkets now needed to focus on availability, ranges, innovation and the overall shopping experience instead of price, he said.
“Premium retailers such as Waitrose are making hay while Tesco is feeling a bit of a squeeze. You [the supermarkets] want to offer consumers the best deal, but you have got to improve the overall shopping experience,” said Wild.
City analyst Clive Black of Shore Capital said: “Price alone does not explain shopping patterns. If it did Tesco would recover easily. And everyone would shop at Aldi and Asda; most people do not.”
ING analyst Jan Meijer told FoodManufacture.co.uk that the supermarkets will have to cut prices to reflect reductions in commodity prices.
He said: “I do think the average supermarket price level will have to come down now commodity prices have decreased in the past 12 months.”
Following calls from broker ING last week for Tesco to cut its prices to stop customers switching to Asda, Dave McCarthy of Investec told FoodManufacture.co.uk that the UK food retail sector was now in “structural decline”.
