Challenges in the retail food sector

Volatility means extreme, difficult to predict price fluctuations and meanwhile characterises the procurement of raw materials. Climate change, geopolitical conflicts and speculation are causing the prices of raw materials to fluctuate strongly: According to a current survey by the European Central Bank (ECB) milk prices vary by 40 percent, butter prices by 50 percent and cocoa by over 60 percent – all within just a few months.

This undermines traditional procurement planning. The result for many procurement departments: An annual contract with fixed prices is presently more of a gamble than a strategy. Buyers, who act the same way as five years ago, are lofosing out against discounters like Aldi and Lidl, who are much more agile and rely on scenario models, continual monitoring and data-driven forecasts.

The consequence for buyers: They don't use a single price for their planning, but instead multiple scenarios and clearly-defined price ranges per product, including a financial buffer for the worst-case scenario.

Energy is a frequently underestimated cost driver. Although the retail food trade was able to significantly reduce its power consumption according to the "Energy management in the retail trade" EHI study of 2025. At 320 kilowatt hours per square metre of sales area per year, the average power consumption in supermarkets is still higher than for self-service department stores and discounters. In comparison: The consumption in the non-food section is only 71 kilowatt hours per square metre per year. Factors like constant refrigeration, lighting, doors and cash register systems still constitute immense cost elements in spite of this reduced consumption.

Logistics also continues to be a cost driver. This is becoming clearly evident in the daily operations of many procurement departments: The lack of drivers and fragile supply chains are additionally increasing the pressure. In addition to this, regulatory requirements such as EU bans on plastic are making the costs for packaging rise further. Sustainable materials are more expensive and the necessary conversion ties up capital as well as personnel and operational resources.

The strategic response: Buyers are not only questioning the purchase price, they are consciously examining further factors: the energy efficiency of production, the sustainability of the packaging and the optimisation of transport routes. In practice, the individual price is thus less decisive than how stable and economical the costs remain until the product reaches the shelf.

What is more valuable: the lowest price or stable planning? The answer is clear today for many buyers, even if it is not always easy to implement in the daily practice. When low margins prevail, planning security becomes a strategic advantage. Procurement no longer thinks in isolation, but increasingly follows so-called total cost of ownership models: from raw materials and processing, to packaging and transport, right through to the shelf.

The increased market concentration is intensifying this development. In many of the commodity groups fewer companies dominate the market, whereas only chain stores with professional cost control can remain competitive long-term. Digital analysis and AI tools make the holistic assessment of commodity groups possible, in other words not the evaluation of individual prices, but the total costs instead.

What this means for procurement: Cost models have to cover all the relevant items. Only then is it possible to show in practice that a supplier with slightly higher raw material prices, but a significantly better energy efficiency, can be more economically efficient overall.

Which contract model protects against price shocks in procurement? There is no simple answer. The decision is differentiated and commodity group-specific.

• • Fixed prices, for example for twelve months, offer security for stable products, seem reliable short-term, but carry the risk of being too expensive should the prices fall.
  • Index models are fair in volatile markets like cocoa or coffee, but result in noticeable fluctuations in the budget planning.
  • Flexible contract terms increase the adaptability, but they go hand in hand with a significantly higher coordination and negotiating effort.

The strategic response: Buyers structure their product range according to price volatility and market power, not solely based on revenue. A contract model is chosen for each category that best suits its risk profile.

Which cost components have to be transparent to assess price increases fairly? An overall price does not suffice in practice. Only transparent cost breakdowns for raw materials, logistics and processing allow reliable benchmarking. Without this transparency, the risk escalates that cost increases will be passed on without scrutiny.

Hence, ESG ratings like EcoVadis are becoming increasingly more important in the pre-selection of suppliers. Furthermore, they also serve as an early warning signal for procurement departments: Weak ratings increase the regulatory and operational risks and can have long-term economic impacts.

The consequence for the buyers: They demand standardised cost models, frequently in clearly defined templates, such as those generated via Excel. Transparency and sustainability not only strengthen the negotiating position, but increasingly also contribute towards building consumer trust.

Securing the capability to deliver is a further key challenge procurement departments in the retail food sector are faced with. The war in Ukraine has clearly demonstrated how risky one-sided dependencies are. A conflict or a drought can interrupt entire supply chains.

New raw materials also pose risks. Companies that rely too heavily on a single innovation partner too early risk facing empty shelves.

The strategic answer: Procurement defines concrete scaling targets for critical commodity groups with a view to the next three years. At the same time, alternative supply sources are consciously developed, not just individual ones, to reduce dependencies and avoid the risk of focusing on a single partnership.

Not every innovation creates added value. The market is full of new products with great marketing promises, but low economic impact. The key question for procurement is: Does this innovation bring true benefits?

Therefore, innovations with economic substance are in demand. Either as process innovations that reduce costs and dependence on raw materials or as products with genuine added value for the end customers, which make higher prices possible in the first place.

What buyers can conclude from this: A clear filtering framework determines listing decisions. Does the innovation reduce costs? Is the supply company scalable? Does the product create a real value for the customers? Those, who are consistent, win.

The food market is highly competitive, volatile and price-sensitive. Procurement departments are meanwhile experiencing this on a daily basis. Those, who continue to focus solely on the cheapest price, are increasingly falling behind. Successful buyers think strategically: They plan in scenarios rather than in rigid contracts, calculate total cost of ownership rather than individual prices, build up alternative supply sources and consistently evaluate innovations based on their measurable economic benefits. Precisely this shift in perspective makes it possible to master even complex challenges within the retail food trade.