Issue 488 - Prices down?
8 June 2023
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Retail by Email - Issue 488 - Prices down.
With inflation starting to fall from record highs, aided by the fall in fuel prices at the pump and by falling energy costs too.
All eyes turn to the food retail sector to see how they’re able to pass on the benefits of a lower inflation rate….
However, it’s not as simple. We know that many agreements for retailers and suppliers are year long, and agreed when the world was a different place. So the full impact of inflation did take time to come through, it wasn’t instant.
However recently, prices have risen steeply and this is potentially related to suppliers and retailers giving themselves wiggle room, almost “pricing rises in.” Knowing that cuts will have to come (certainly middle half of this year, so June/July?…)
But in the main, it’s a reflection of rising costs that hit suppliers last year, particularly as they’ve had to take energy price rises alongside other cost inflation. The challenge is that whilst agreements can be reviewed, it’s difficult for any supplier to push through cost price increases, at any time. Bar negotiation time.
For smaller suppliers. it’s even harder. Added to the fact that UK consumers will not pay higher prices than necessary. No consumer will, but our European cousins are happier to pay higher prices, whereas our market is very price driven.
This is why we have had shortages on Produce grown in Europe. Earlier in the year, the UK market wouldn’t pay what other nations were prepared to pay, so we lost out.
UK farmers and growers wouldn’t use lighting and other equipment to start growing earlier, because the costs were onerous. Who can blame them?
Whereas now, it’s all about reviewing the JBP (joint business plans) and bringing in price cuts where possible.
Customers expect it.
Yet some of the inflationary effects are still not through the system, the pump price has fallen in recent weeks. Yet if you buy fuel in bulk, then the price will have been higher some weeks ago, and paid!
Despite Heinz raising prices left, right and centre. Even the might of Tesco was unable to hold back the tide. We never see the price cuts come in as quickly. Or indeed, ever, back to the level they once were.
Therefore we may well see more promotions in the short term, especially if things are easier in the wider market. It looks a solid bet as energy prices fall and fuel drops.
Indeed, we knew inflation would start to fall mid this year, but food prices remaining high is a surprise. Given higher wages in the sector, alongside other cost pressure, it’s less of a surprise to those closely watching.
The price cap was always an absolute non-starter. Plus it was begging for someone to break free of it (IE Aldi) and claim a victory on price.
Consumer spending power remains under pressure, however. The prospect of yet more interest rate rises will loom large, especially for customers who are seeing their fixed rate deal end.
Tough times ahead, but price cuts are expected alongside more promotional work too. This will help to alleviate some pressure on consumers, but Brexit plays a huge part in the residual inflation.
Especially given the changes that have come in post the deal that was signed by Boris Johnson in 2020. Everything takes longer and has more admin and paperwork attached to it, that cost, has to be borne by someone.
So expect more promotions, more volume drivers and more deals.
This is where the price war really starts…..
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From the Grocery Insight newsletter archive, first sent to subscribers on 8 June 2023. Steve now writes at read.groceryinsight.com. See also the blog archive and briefings.