Technology

Rising Energy Costs Likely To Hit Frozen Food Specialists Hardest, Says Moody's

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Rising energy costs are likely to impact frozen food specialists such as France's Picard and UK retailer Iceland harder than other grocers, while retailers that specialise largely in ambient products are expected to see less impact, a new report from Moody's has said.

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

It said that Picard and Iceland spent around 1.5% of their total revenue on energy costs in 2021, which was before this year's energy spikes.

Moody's recently downgraded Iceland from B3 negative to B2 stable, as it believes that its credit ratios will materially weaken due to rising input and energy costs.

Fresh Food Prices Set to Rise

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% to 30% 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,' it 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.'

Geographical Spread

For retailers with a larger geographical footprint, particularly outside of Europe, the impact will be lessened, Moody's added – Carrefour and Casino, for example, have large operations in Latin America, where governments typically regulate electricity tariffs.

In addition, Ahold Delhaize has a sizeable presence in the US (around 62% of its total 2021 revenue), where energy costs are not increasing as rapidly.

© 2022 European Supermarket Magazine – your source for the latest technology news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: European Supermarket Magazine.

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