October 22, 2021
  • October 22, 2021

UK retail signals prospect of higher food prices

By on August 29, 2021 0

Food price updates

Food prices are expected to rise later this year as a shortage of truck drivers and tightening regulatory controls on imported food combine with rising prices for fuel, freight and raw materials, experts have warned.

Retail organizations have said moderate food prices in recent years may not last longer. “The headwinds faced by traders are very significant, even though [higher prices] haven’t materialized yet, ”said Kyle Monk, chief insight and intelligence officer at the British Retail Consortium.

Fraser McKevitt, head of retail and consumer insight at market research group Kantar, said cost increases, including recent salary increases and other incentives for drivers of truck in order to alleviate the shortages, “have been so great that I don’t see how they can avoid the price hikes. . “

Kantar’s latest four-week data, which tracks the prices of more than 75,000 food and household items, showed food prices were up 0.4 percent year-on-year.

Inflation data from the Office for National Statistics showed increases in food prices in May and June, helping push headline inflation up, although they declined slightly during the most recent period. recent.

Government believes higher labor costs – increasingly evident in food processing and transportation as the supply of cheap labor in Eastern Europe has plummeted following Brexit – take a long time to affect the prices on the shelves.

“[Government] The analysis is that a 10 percent increase in labor costs over three years translates into a 2 percent increase in food prices, ”said Monk. But he pointed out that wage pressure was added to rising oil prices, significantly higher container freight rates and higher raw material costs.

The Food and Agriculture Organization’s food price index for July was 31% higher year-on-year, due in part to meat and grains.

In such a competitive industry, decisions about which prices to increase, by how much and when are critical; McKevitt points out that for supermarkets, nothing is more directly related to market share than price.

Steve Dresser, founder of consultancy firm Grocery Insight, said the last thing supermarkets wanted consumers to see were “higher prices on the shelves.”

In the past, they have proven adept at offsetting cost pressures by forcing suppliers to lower their prices, lower their own costs, or generate revenue by persuading brands to pay for in-store promotions.

But with suppliers now facing many of the same pressures, their ability to continue to do so is limited.

The first victim will probably be the promotional activity. Supermarkets sharply cut promotions early in the pandemic as their operational complexity interfered with efforts to keep stores fully stocked.

The proportion of sales made by promotional items fell from 36 percent to 21 percent in Tesco’s last fiscal year.

“By summer [promotions] had started to come back and before this month that fueled deflation – because there were promotions this year but not during the comparative period, ”McKevitt said. “But this dampening effect is starting to wear off.”

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Dresser said the reintroduced promotions were often less generous than the original variants. “The deals came back, but they’re weaker deals – let’s say 2 for £ 2.50 instead of 2 for £ 2,” he said.

Another tactic is likely to be smaller packages, known in the industry as “shrinkflation”. These are commonly used in areas such as salads and berries to ease the seasonal transition from UK produce to more expensive imported goods.

But they also creep elsewhere; Dresser cites refrigerated portions of chicken and ready-to-cook products increasing from 450g to 400g, an increase of 12% if the item’s price is kept constant.

The cost of food has been flat or declining for most of the past five years – in part because major supermarkets have reduced their prices in response to market share gains from discounters Aldi and Lidl – while the proportional cost of food in UK household spending has consistently reduced for many years.

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