Food prices are set to rise later this year as a shortage of lorry drivers and increased regulatory controls on imported food combine with rising fuel, freight and raw material prices, experts have warned. .
Retail bodies said the subdued food prices of recent years may not last much longer. “The headwinds faced by traders are very significant, even if [higher prices] have yet to materialize,” said Kyle Monk, director of analytics and insights at the British Retail Consortium.
Fraser McKevitt, head of retail and consumer insights at market research group Kantar, said cost increases, including recent wage increases and other incentives for truck drivers to alleviate shortages, “have been so significant that I don’t see how they can avoid price increases. ”
Kantar’s latest four-week data, which tracks prices for more than 75,000 food and household items, showed food prices rose 0.4% year-on-year.
Inflation data from the Office for National Statistics showed increases in food prices in May and June, helping to push up headline inflation, although it fell slightly during the peak period. recent.
The government says higher labor costs – increasingly evident in food processing and transport as the supply of cheap labor in Eastern Europe plummeted after Brexit – put a long time to affect prices on the shelves.
“[Government] the analysis is that a 10 percent increase in labor costs over three years translates to a 2 percent increase in food prices,” Monk said. But he pointed to wage pressure on top of rising oil prices, sharply rising container freight rates and rising raw material costs.
The Food and Agriculture Organization of the United Nations food price index for July was 31% higher year-on-year, driven by meat and grains in particular.
In such a competitive industry, decisions about what prices to raise, by how much and when are critical; McKevitt points out that for supermarkets, nothing is as directly related to market share as price.
Steve Dresser, founder of consultancy Grocery Insight, said the last thing supermarkets wanted consumers to see was “higher prices on the shelf”.
In the past, they have proven adept at offsetting cost pressures by forcing vendors to cut prices, reduce their own costs, or generate revenue by persuading brands to pay for in-store promotions.
But with providers now facing many of the same pressures, their ability to continue to do so is limited.
The first casualty will likely be promotional activity. Supermarkets cut promotions sharply at the start of 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% to 21% in Tesco’s last financial year.
“In the summer [promotions] had started to come back and before this month it fueled deflation – because there were promotions this year but not in the comparative period,” McKevitt said. “But that 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 offers have returned, but they are lower offers – say 2 for £2.50 instead of 2 for £2,” he said.
Another tactic will likely be to reduce packaging size, known in the industry as “shrinkflation”. These are commonly used in areas such as salads and berries to facilitate the seasonal transition from UK produce to more expensive imported produce.
But they also insinuate themselves elsewhere; Dresser cites refrigerated chicken portions and ready-to-cook products increasing from 450g to 400g, a 12% increase if the item price is held constant.
The cost of food has been stable or falling for most of the past five years – partly because major supermarkets cut prices in response to market share gains from discounters Aldi and Lidl – while the proportional cost of food in UK household spending has been steadily reduced for many years.
