Yahoo Finance How supermarkets became public enemy number one
Supermarkets were lauded for feeding the nation in a time of crisis during the pandemic, but now find themselves public enemy number one.
With prices on shelves rising at a rate not seen in decades, shoppers are looking for someone to blame.
Supermarkets have found themselves in the line of fire: politicians, shoppers and farmers have accused major grocers of profiteering and “greedflation”.
After weeks of criticism, Sainsbury’s threw down the gauntlet to rivals on Tuesday when it slashed the price of bread and butter, citing a fall in wheat and dairy prices. A loaf has now been reduced by 10p to 75p.
However, Sainsbury’s bread still costs 20p more than it did in February 2022, according to data from Assosia.
The higher price comes despite the fact the wholesale cost of wheat has fallen to lower than it was before the invasion of Ukraine.
It raises questions about whether supermarkets are truly passing on falling costs to consumers.
Sir Ed Davey, leader of the Liberal Democrats, is calling for an official inquiry into “greedflation”, suggesting food manufacturers and supermarkets are unfairly using inflation as cover to feather their own nests.
“We start with the consumer and are they getting a fair deal in this really tough time?” Sir Ed says.
“Those people who are saying there is nothing to see here – if there’s nothing to see, put your case to the competition authorities.”
Campaigners like Sir Ed are angry that food prices are falling slowly – or in many cases still rising – even as the wholesale cost of everything from energy to wheat falls from the highs seen last year.
The Office for National Statistics waded into the debate earlier this year, revealing that the cost of food had surged 19.2pc in the year to March despite international food prices beginning to fall.
The stats body told the BBC last month: “You would expect to see [global food price falls] reflected in supermarkets but we’re not there yet.”
The cross-party Environment, Food & Rural Affairs (EFRA) committee has said it may summon supermarket bosses to be grilled on why prices have not yet come down in any meaningful way.
“Greedflation” and profiteering are loose terms but Sir Ed says it is first and foremost about how much is being charged at the till.
He is concerned that supermarkets are taking a “rocket and feather” approach to prices: raising them quickly as their costs rise – the rocket – but lowering them much more slowly when inflation pressure eases – falling like a feather.
Petrol stations were heavily criticised by motorist groups last year for taking this approach with fuel when oil prices surged then dropped back following the invasion of Ukraine.
Supermarkets have defended themselves by saying they too are facing huge cost increases, not just for food but wages and energy too.
“Many supermarkets have seen profits fall in the last year due to the high cost of energy, transport, and labour, as well as higher prices paid to food manufacturers and farmers,” says Andrew Opie at the British Retail Consortium (BRC).
Tesco’s profits fell 51pc to £1bn last year. Asda’s profits fell almost a quarter to £886m in 2022, while Morrisons made a loss last year.
Sainsbury’s suffered a 5pc fall in profits. Chief executive Simon Roberts claimed Britain’s second largest supermarket was doing “all we can” to rein in inflation and keep prices as low as possible.
Opie says: “Retailers are investing heavily in lower prices for the future. To further help those impacted by the high cost of living, supermarkets have expanded their affordable food ranges, locked the price of many essentials, and continue to offer support to vulnerable groups.
“When cost pressures facing retailers do eventually ease, retail prices will follow fast as they fiercely compete for market share.”
While the cost of line items such as wheat, dairy and energy has been easing in recent months, there are still commodity prices that remain elevated.
Ged Futter, director of retail consultancy The Retail Mind, says: “There are different parts of [food] where inflation is still really high. Things like sugar, chocolate and energy are still high. Everybody has talked about ‘greedflation’ but there’s no evidence."
There are signs that supermarkets may be beginning to cave in to public pressure.
Tesco recently slashed the price of milk for the first time in three years in a bid to undercut Aldi and Lidl, prompting all other major grocers to follow suit.
Yet it is not just shoppers who say they are getting a raw deal. Suppliers of fresh produce and farmers complain they are being underpaid by supermarkets.
Ali Capper, the chair of industry group British Apples & Pears, says the cost of growing apples has gone up by almost a quarter over the last year. However, supermarkets are offering to pay just 0.8pc more on average for the fruit.
“It's just extraordinary,” she says. “If that’s not profiteering, what is?”
Compared to big suppliers such as Heinz and Unilever, which can threaten to pull their products from shelves if retailers don’t agree to what price their products should be sold at, farmers are often small businesses with “not enough leverage” to demand a higher price, she says.
“The Government could launch an investigation to look at the share of profit in the supply chain, because it's just not fair,” she says.
Meanwhile, one supermarket supplier who sells packaged goods claimed some retailers were refusing to pay higher prices to wholesalers while still bumping them up in store.
“[They] only accepted half of our price increase and then took the whole consumer increase,” says the boss of one food company. “So they did increase their margin.”
Walter Zanre, managing director of Filippo Berio Olive Oil, argues it is the food manufacturers that are to blame for rising prices.
Profits made by big food and drink suppliers like Heinz and Unilever certainly outstrip those being made by supermarkets. These companies too have faced accusations of profiteering.
Alan Jope, the chief executive of Marmite, Dove and Magnum owner Unilever, insisted this was not the case when quizzed last month.
He pointed out that Unilever’s profit margins have shrunk from 18pc to 16pc, in effect forcing shareholders to bear some of the brunt of inflation.
In contrast, supermarkets generally work with margins around 3pc.
However, that is a margin that many squeezed shoppers may still resent.
It is also cold comfort for farmers who believe they are getting a raw deal.
“I would say that you’re still making a profit,” says Capper. “The businesses that I’m representing are not, they’re making losses.
“If family farming businesses make a loss, who suffers? They do and their employees do when they have to make those employees redundant when those businesses go bust, when those family farming partnerships don’t have anything to retire off or pass down to the next generation.
“It’s business-breaking and it’s not fair.”
