Rising Prices and Your Shrinking Weekly Shop

By Moira McCormick on March 9, 2017

Rising Prices and Your Shrinking Weekly Shop

The value of the British Pound has slumped, down 15 % since the Brexit referendum.  As half of the food we eat is imported, this is bad news for shoppers.

Supermarkets and manufacturers are struggling to reign in their rising costs.  Tesco even took Marmite off their shelves when they were being pressed by Unilever to pass on higher costs due to the slump in value of the pound – Tesco said they wouldn't impose this on their customers;  it applied to Hellmans and Colemans products as well.

So, are things more expensive to the average supermarket shopper since the referendum?  The answer is that you have to be prepared to shop around (if you can spare the time). 

In recent years supermarkets have been competing with one another to keep their prices down, which has led to more imports from abroad.  The fall in the pound has affected this, as has the increase in fuel prices and packaging costs.

 

Pricing Trends for 2017

 

Food prices are predicted to go up by 3% this year.  According to a poll conducted by Channel 4's Dispatches programme, 60% of consumers think this will adversely impact on their finances.

In a survey conducted on 175,000 everyday foods, some have shot up at many times the rate of inflation since the referendum:

  • Tesco – flour has risen by 6%
  • Sainsburys – frozen Vegetables have risen by 6%
  • Asda – chilled juices have risen by 7%
  • Morrisons – tubs of ice cream have risen by 8%

It is not just imported goods that have risen in price; dairy products produced from British milk have also experienced a price hike.  This is because the British milk price is set on the international market and as the value of the pound fell the price of milk rose.  So, the costs for manufacturers of cheese and butter have gone up about a third in the space of a month.

Supermarkets are reluctant to pass on these price rises because they think consumers will defect to the discounters, Aldi and Lidl.  This was the mistake that the big high street supermarkets made after the financial crash of 2008 when they put their prices up to protect their margins and their customers began to shop elsewhere.

 

What is the alternative to Rising Prices?

It's shrinkflation

Toblerone is the obvious, well-publicised product where the packaging remained the same but the consumer got 20g less chocolate.  The bar of chocolate shrank and the price remained the same as before.

A box of Birds Eye Fish Fingers has been reduced from 12 to 10.

With Tropicana orange juice, 150ml has been taken out of their largest carton.

You now get 8 instead of 9 in a box of Mr Kipling Angel Slices.

Retailers have become more sophisticated in trying to hide price increases, perhaps hoping that consumers will not notice.

However, shouldn't manufacturers make it clearer to consumers when they shrink their products?  Wouldn't it be easier and certainly more transparent for the pack sizes to remain the same but for the prices to go up?  Consumers have a right to know what's going on, that they are getting less for their money than previously.

The British Retail Consortium (BRC) has stated "sizing and pricing of products is impacted by cost of raw materials, negotiations with manufacturers and changing portion sizes.  Prices and sizes of all products are clearly labelled so customers can make informed decisions about their purchases."

The Food and Drink Federation said:  "shrinkflation is not an underhand way of passing on costs."

 

Watch Intro Video

 

Promotions

40% of supermarket products are sold on promotion and this often makes price increases even more difficult to spot.

Bundling focusses on the price of the bundle and not on the unit price so the customer may not actually realise the price increase – it's the offer that draws them in.

The BRC says "major supermarkets are working to make pricing clearer and simpler and improving the way that unit price is displayed."

 

Eating Out

Restaurant owners are struggling with soaring costs and inevitably bills will rise.  One-quarter of the food we eat comes from the EU – cheeses, olives, vegetables, meats, olive oils to name but a few.  When the pound fell against the Euro it was only a matter of time before the consumer would pay for this with price rises when dining out.

 

Raise a Glass

Britain is the 2nd biggest wine importer in the world.  The wine we import will cost £400m more this year, putting an average 29p on a bottle of wine in shops or £1 on a bottle in a restaurant.  This is a silver lining for English wines but at the moment these are currently only a tiny proportion of the market.

 

Winners After Brexit

Anyone who imports from outside the EU and currently incur tariffs from the EU.  An example of this is Tate and Lyle and imported sugar cane.  Brexit will mean they (and others) will no longer pay high tariffs on goods imported from outside the EU. 

A post-Brexit suggestion which is favoured by the Government is a Free Trade Deal with the EU.  The alternative is paying import taxes from the EU at a rate set by the World Trade Organisation, which is estimated will put an extra 5% on our weekly shop – or as much as £200 on the annual bill.

 

The Price of Our Food Shop

Professor Alan Matthews, from Trinity College Dublin, has argued that Brexit would have a “negligible” impact on food prices overall. In a presentation last year, he said extra trade costs with the EU would be offset by the removal of the EU’s tariffs on certain foods sourced elsewhere.

However, only when we finally leave the EU will we know just what will be in store for the price of our food shop.

 

Free Pricing Audit

 

Related Post

Pricing Under Uncertainty Post-Brexit

 

Sources

Supermarkets: Brexit and Your Shrinking Shop, Channel 4 Dispatches

http://www.bbc.co.uk/news/business-36537906

http://www.libdems.org.uk/brexit-challenge-fooddrink-paper

http://www.express.co.uk/news/uk/722226/Food-prices-fall-down-Brexit-EU-report-experts-UK-exit

https://www.marketingweek.com/2016/10/13/unilever-defends-brexit-price-rises-as-marmite-disappears-from-tesco-shelves/

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