Supermarkets and inflation

The last two years has seen UK consumers having to endure supermarket price increases at a level never seen before. But there is some good news on the horizon.

Supermarket inflation reducing

According to figures released by Kantar today (18 July 2023)  “Grocery price inflation has seen its steepest decline since inflation peaked in March this year, falling 1.6 percentage points to 14.9% in the four weeks to 9 July 2023.” Interestingly, compared with 12 months ago, take-home grocery sales over the same four weeks grew by 10.4%.

Fraser McKevitt, Head of Retail and Consumer Insight at Kantar, explains:

“Grocery price inflation has now been falling for four months in a row.  That will be good news for many households although, of course, the rate is still incredibly high.  The change comes as spending on promotions has gone up for the first time in two years, now accounting for just over a quarter of the total market at 25.2%.  One of the biggest shifts we’ve seen in this area is retailers ramping up loyalty card deals like Tesco’s Clubcard Prices and Sainsbury’s Nectar Prices.  This could signal a change in focus by the grocers who had been concentrating their efforts on everyday low pricing, particularly by offering more value own-label lines.

“The boost to promotional spending has contributed to bringing inflation down but this isn’t all that’s driving the change.  Prices were rising quickly last summer so this latest slowdown is partially down to current figures being compared with those higher rates one year ago.”

Changing shopping habits

The research shows that consumers have changed their shopping habits considerably. If they were to purchase the same items as a year ago, taking inflation into consideration, they would be spending £683 more per year on groceries. However the research shows that the increase in spending over the last year was only £300. This means that consumers are buying fewer products and/or buying cheaper products.

The trend of visiting supermarkets less frequently and buying more when there has continued since the pandemic. Compared to last year, trips to the store have only gone up by 1%.  McKevitt says:

“At that rate of change it would take until 2028 for us to get back to 2019 levels.  While some people may be shopping less often to manage spending, this is also linked to more people working from home.  That has led to fewer opportunities to pop into the shop on the way to or from work.”

Seasonal shopping

The weather was key for purchases in June, too! The hottest June on record saw us taking to the outdoors to eat, with sales of barbecue familiar classics, such as burgers, rising by 7%. Our family certainly contributed to that figure! But whilst the sun was lovely for many of us, hay fever remedies also increased by 16%!

Supermarket sales

Sainsbury’s sales were ahead of Tesco and Asda for the first time since January 2023. The Kantar research states:

“It grew by 10.7%, maintaining its share of the market for the third consecutive month and is now at 14.9%.  This was just ahead of Asda and Tesco which increased sales by 10.5% and 10.2%, giving them market shares of 13.6% and 27.0% respectively.

Aldi was again the fastest growing grocer, with sales up by 24.0%.  It now holds 10.2% of the market, up from 9.1% a year ago.  Lidl increased its market share, up by 0.7 percentage points to 7.7%, with sales increasing by 22.3%.

Morrisons saw growth of 2.5%, its best showing since April 2021 and its eighth month in a row of improved performance.  Both Waitrose and Co-op grew by 5.1% over the 12 weeks, the largest boost both retailers have experienced since March 2021.  Waitrose now holds 4.4% of the market and Co-op 6.0%.

Iceland maintained a 2.3% share of the market after growing sales by 8.9%.  Ocado’s sales rose by 2.0%, taking an overall market share of 1.7%, aided by its much larger 3.0% share in London.”

Calls for Government to do more to help consumers

Which? has called on the government to take action to support households when the Competition and Markets Authority publishes its review of grocery pricing. Which? says that, some food prices have jumped by as much as 175% since 2021. (See UK consumer group calls for government action on grocery prices ).

In this article, the British Retail Consortium (BRC), which represents the major supermarkets, says that supermarkets have not passed on their cost pressures. It would say that though wouldn’t it?!

BRC Chief Executive, Helen Dickinson, said “The hard work being done by retailers to absorb cost increases means the UK offers among the cheapest grocery prices in Europe”

She also said that the prices of some key staples, such as butter and bread, had begun to fall in recent weeks, but given how much they went up I think we’d all like to see them reduce further and more quickly.

Countries throughout Europe are struggling with high inflation. Last month the French government secured a pledge from 75 food companies to cut prices on hundreds of products. Hungary has imposed mandatory price cuts. However, despite the CMA announcing in June of this year that it was taking action to help contain cost of living pressures, the UK Government has ruled out imposing price caps.

The CMA CEO, Sarah Cardell, said they recognised that “global factors” were behind many grocery price increases and commented that the CMA had seen “no evidence at this stage of specific competition problems”. The CMA is “stepping up our work in the grocery sector to help ensure competition is working well and people can exercise choice with confidence”.

This investigation needs to be completed swiftly and action taken if it finds that supermarkets have not been passing price reductions onto consumers. The CMA has the power to fine companies up to 10% of their global annual turnover!

Inflation rate

19/7/23  In the Office for National Statistics Consumer price inflation, UK: June 2023 inflation has dropped from 8.7% in May to 7.9% in June a 16 month low. Prices are rising slower than expected but still rising and still high.

ONS Consumer Price Index figures, May 2023.

Year on Year changes	May-23	Jun-23
CPI (overall index)	8.7%	7.9%
01    Food and non-alcoholic beverages	18.3%	17.3%
02    Alcoholic beverages and tobacco	9.3%	9.2%
03    Clothing and footwear	7.1%	7.2%
04    Housing, water, electricity, gas and other fuels	12.1%	12.0%
05    Furniture, household equipment and maintenance	7.5%	6.5%
06    Health	8.3%	8.2%
07    Transport	1.2%	-1.8%
08    Communication	9.1%	9.5%
09    Recreation and culture	6.7%	6.7%
10    Education	3.2%	3.2%
11    Restaurants and hotels	10.3%	9.5%
12    Miscellaneous goods and services	6.8%	6.5%

 

 

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