Grocery prices in South Africa spiked during lockdown – but still haven’t returned to normal
The Competition Commission has published its latest essential food price monitor, showing how the Covid-19 lockdown impacted the cost of food in South Africa.
The onset of the Covid-19 health crisis and the associated lockdowns saw panic buying behaviour in both wholesale and retail markets.
In terms of wholesale fresh produce markets, initially price increases were observed in vegetables such as carrots, onions, and tomatoes.
In commodity markets for grains, price increases were observed initially due to exchange rate movements as well as the actions of various governments such as limiting exports to ensure food security.
While the price of food has appeared to normalise at a wholesale level, the commission said that there was greater concern in retail markets.
“The previous food price monitoring reports identified price impacts over the initial Covid-19 and lockdown period, likely driven by panic buying behaviour,” it said.
The report found that pricing at the retail level was quick to respond to cost increases and slower to respond to cost decreases.
“Most importantly prices had not returned to normal levels following the initial spike in prices, with the pricing spread between wholesale and retail still higher than prior to the onset of the pandemic.”
Retailers benefitted
Apart from the Massmart Group of stores, all retailers either reported increased sales volumes growth or sales revenue growth in their latest financial statements, the Competition Commission said.
“The effects may be even more pronounced than what is presented in the financial statements as sales reporting is typically aggregated, consisting of all grocery items rather than food alone,” it said.
Woolworths reported that its food division saw an increased sales revenue growth of 10.7% for the whole year and 13.3% revenue growth in the second half of their financial year.
The second half of the financial period coincides with the pandemic and lockdown period and the fact that Woolworths saw a higher revenue growth in this period is consistent with the view that the lockdown resulted in increased volumes at the retail level given the shift in consumption patterns.
Apart from Pick n Pay, all retailers including Massmart reported increased gross profit margins, the commission said.
“The metrics provided by retailers in their financial statements relating to price changes are average internal price inflation or product inflation15 in some instances.
“These measures (price inflation and product inflation) provide an indication of average price increases across different retailers. These are between 3% and 6.5%.”
Although these measures are aggregated, the commission said that this is consistent with the increased prices observed in this, and previous, food price monitoring reports.
Meat prices one of the biggest offenders
While some markets such as onions and potatoes suggest an easing of prices and concerns, the commission said that the assessment of meats shows that pricing concerns remain.
“The assessment of meats shows that the pandemic and lockdown had a significant effect with clear market disruption evident,” the Competition Commission said.
“Retail prices and wholesale-retail spreads for a number of products are yet to return to pre-lockdown levels.”
An examination of the financial performance of retail companies shows that on the whole both margins and volumes have increased relative to prior periods which is consistent with the analysis done by the Commission previously using the general Stats SA data.
Results for food manufacturers/processors are more mixed with varying results in terms of margins compared to previous periods.
“However, overall profitability is by and large higher than previous periods, driven by greater sales volumes following greater demand at the retail level.
“This is consistent with the view that panic buying and changes in consumption patterns from eating out to in-home cooking and eating occurred.”
Read: Why rich South Africans are less optimistic about their finances heading into 2021
