Increase the price of goods to control demand, expert recommends

Kurt Jetta, executive chairman and founder of TABS Analytics, defends that retailers should be able to increase the pricing of the goods. [TABS Analytics]

With restrictions to contain the coronavirus getting stricter in many member states and the fear of contagion growing, online shopping can be the solution to do the groceries, a consumer researcher told EURACTIV in an interview.

In recent weeks, consumers going to the supermarkets are facing empty shelves when searching for toilet paper, pasta or hand sanitizers. In order for this not to happen, Kurt Jetta, executive chairman and founder of TABS Analytics, argues that retailers should be able to increase the pricing of the goods.

With the spread of coronavirus, what will be the impact on the deliverability of consumer goods like groceries?

In the short term, the impact has been pretty strong. There is a surge in demand. People are pushing forward their purchases and the normal purchase cycle now is all condensed into one period. This is why we are seeing a lot of shortages. My biggest fear now is that the market still has a lot of control on pricing and price quote gouging. During these types of periods, and without the price being able to adjust to what the true demand is, we are going to see these persistent shortages and not enough people being able to stock the shelves. If retailers were able to have more flexibility in how they set their prices, then we would see a lot more stable and predictable supply chain.

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Are you concerned about a shortage of food supplies?

Well, yes. There are shortages because the demand is much higher, and the pricing has not reflected that. People have a disposal income now that they are not able to spend on leisure, dining or eating out, etc. It is inevitable that a lot of that disposal income is going to flow to consumer goods. One of the few areas where people are able to go out now is to the grocery stores. It is just inevitably going to be a much higher demand for the products and the only way you can guarantee that there will not be these consistent shortages is to let the market clear. The pricing should be based on the level of demand. Once the pricing gets to the level where it should be, we are going to see plenty of products.

The higher demand we are observing is due to the increasing needs (people eating more at home) but it is also because of stockpiling. Plus, even if people have more money to spend on food, it is also true that many risk losing their jobs. Do you believe that raising prices would not be a problem here? 

The increasing demand is much more a function of more people buying things rather than stockpiling. Kantar just had a study corroborating that. Increased prices will mean better supplies of products, more jobs for laid-off workers and better service because of higher numbers of in-store personnel. The whole prohibition on “price gouging” is such a Neanderthal concept, and I’m surprised we haven’t learned anything about Supply and Demand economics in the last 150 years.  If we want more goods that are important to us – food, medical supplies – then we must pay more for them.  When prices are higher, there are more people willing to supply them.  We don’t need a government mandate for these things to be supplied; they will be supplied by free will if there is an economic incentive to do it. The beauty of the market is that once there’s a greater supply, prices begin to fall.

With the restrictions imposed by governments and the fear of the most vulnerable groups of leaving the house to go to the supermarket, for example, people are searching for alternatives, like online shopping. Can we expect an increase in online shopping?

Yes, there is definitely going to be a big jump. But it is not going to replace supermarkets and there will be a kind of disconnection as well. The most vulnerable part of the population has the least level of engagement with the online in general and with online shopping specifically. Online has its own set of issues, particularly with buying and quantities. You cannot really not conduce it to a major kind of a market basket load for groceries. But definitely we will see a big increase.

According to Eurostat, in 2019, 17% of the EU-28 population purchased food/groceries online. Italy appeared on this list with 5%. Being at this moment the epicentre of the crisis, what can we expect this number to be in 2020? Can we expect an increase in the numbers in all EU?

Yes. Usage has grown significantly in all countries with the increased availability of online pickup options and increased competition. The COVID-19 situation should accelerate the adoption of online as a regular, but not predominant, option of grocery purchases.

In the aftermath of the crisis, what do you think will change when it comes to the number of people who buy groceries online? Can we expect an increase regarding consumer loyalty to e-commerce?

There will be some stickiness of new triers, but we should expect most people to return to their normal habits. Lost in the discussion of online grocery is that grocers generally have very high loyalty rates themselves. Consumers generally like going to the grocery, so there was not an overwhelming demand for an alternative format in the first place.

[Edited by Jorge Valero]

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