Supermarkets slammed over food inflation
Supermarkets denied profiteering during the cost of living crisis despite eye-watering levels of food inflation. Tesco chief Gordon Gafa said even though it is selling more, it is making less, with profits dropping by seven percent.
He told MPs the chain is now the “most competitive we have ever been” as it vies for customers looking for the cheapest prices.
Mr Gafa said: “We have not made more profit year-on-year. We have actually made seven per cent less profit versus our last financial year. It’s important to be clear on that from the outset.”
Quizzed by the Business and Trade Committee about why profits were £400 million in 2021 compared to 2018, he replied: “Profits year-on-year for the group are down, we have sold more year on year and we have made less.”
Tesco, which is the UK’s biggest supermarket chain, saw its profits cut from £2.03 billion by more than half to £1 billion in the year to February 2023. The drop came despite a 5.3 percent increase in its sales, excluding VAT and fuel, over the year.
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Tesco chief Gordon Gafa
Sainsbury’s also reported a drop in profits last year, tumbling by more than half to £327 million. Morrisons recorded a decline in earnings of 15 percent to £828 million over the year to October 30, from £975 million in the previous year.
Asda said its profitability fell by almost a quarter to £886 million in 2022. Office for National Statistics figures last week showed food price rises have eased slightly but remain at a stubbornly high 18.4 percent.
Supermarkets are under pressure to hand down savings they are seeing on wholesale items to consumers. Sainsbury’s insisted it was not passing all the costs of inflation in its supply chain to customers.
Rhian Bartlett, food commercial director, told the committee the chain has made lower profits and is putting more money into keeping bills down.
She said: “We are acutely aware about the cost-of-living impact on our colleagues and how difficult they are all finding it right now.
“We’ve spent £560 million on keeping prices low, battling inflation and are doing absolutely everything we can to keep prices as low as possible for customers.
Rhian Bartlett is the Food commercial director at Sainsburys
“In the most recent year we made lower profits, at £690 million – input costs are not being fully passed through to our shelf prices.
“We’ve submitted lots of detail on that to the CMA (Competition and Markets Authority) and have had good discussions with the CMA. We are inflating behind our input costs and inflating wherever possible behind the market.”
The committee was told any attempt to impose price caps would backfire. Ms Bartlett said: “This is fiercely competitive as a market.
“We’re generally considered one of the most competitive food markets in the world. I’m not sure what price caps would add to that process, other than bureaucracy.
“Where we’ve seen them applied in France and so on it can have unintended consequences – of selling out and other prices moving up and down. So I think this market self-regulates to a positive extent, so we wouldn’t be in support of price caps.”
Analysis by the BRC-NielsenIQ Shop Price Index showed retailers are beginning to pass on lower wholesale costs, with food inflation easing for a second month running as supermarkets cut the price of household staples.
Asda chief Kris Comerford
Food inflation decelerated to 14.6 percent in June, a relatively significant drop from May’s 15.4 percent and below the three-month average of 15.2 percent.
Fresh food inflation saw a significant slowing from May’s 17.2 percent to 15.7 percent as retailers dropped the prices of staples including milk, cheese and eggs.
Morrisons chief executive David Potts told the committee that eggs and pork had been high because of specific issues in the industry.
He said: “Eggs are a specific example and the reason is that with avian flu, we lost 420 million birds around the world so the meat itself and particularly the eggs were in short supply.
“Producers are starting to rebuild the flocks and are coming back across all the UK. I am hopeful that we will see a gradual normalising of the egg price.
“I will also mention pork, where an almost over-supply of pigs led to a reduction in the rearing of pigs just at a time when demand was going up.
CEO of Morrisons David Potts
“That has put a relatively cheap meat under pricing pressure.”
Mr Potts also defended the supermarket’s fuel pricing policy following criticism of chains for failing to pass on a 5p cut in duty last year.
He said: “We did pass that on, on the same day. Clearly the volatility within the market has to be tracked over time. We have passed on everything the CMA has asked for and will continue to do so.”
He added: “I think we can always do more. The energy costs that exist, the transport costs, the labour costs within our sites, they all have added to the oil barrel post-Russia.
“I do think over four decades the British supermarkets have brought lower prices to consumers in Britain for fuel. These are facts, and right now the prices on our supermarket forecourts are lower than the independents and continue to be so.”
Inflation has continued to slow on food prices from April’s record-breaking high – but is still up nearly 15 percent, year-on-year.
Fresh produce items, such as milk, cheese and eggs, saw welcome price cuts. The cost of clothes and electrical goods also fell ahead of the summer holidays.
Fresh food inflation slowed to 15.7 percent in June, down from 17.2 percent in May. And the rate for grocery prices reduced to 14.6 percent in June, down from 15.4 percent in May – research from the British Retail Consortium and analysts NielsenIQ showed.
All shop prices rose 8.4 percent in the year to June, a slowdown from the nine per cent recorded in the year up to May. Helen Dickinson, chief executive of the BRC, inset, said: “If the current situation continues, food inflation should drop to single digits later this year.”
Last month, Ms Dickinson said there was reason to believe food inflation “might be peaking”. May’s figures showed the second-fastest annual increase measured by the trade organisation for UK retailers, second only to April this year.
Mike Watkins, head of retail and business insight at NielsenIQ, said: “If global supply chain costs continue to fall, we may now be past the peak of price increases.
“However, with most households needing to save money, purchasing for the rest of this year is likely to shift towards essential needs with discretionary consumption deprioritised or delayed.”
The retail industry has faced mounting pressure over the soaring cost of living, after official figures showed the inflation rate remained unchanged in May at 8.7 percent.