- Prices rose at fastest ever rate in January
- Supermarkets withdraw promotions, shoppers trade down
- Bank of England expected to hike rates this week
According to both the BRC (British Retail Consortium) and retail analysts Kantar, UK grocery price inflation is accelerated last month heaping even more pressure on consumers and presenting the Bank of England with a major headache.
Governor Andrew Bailey is widely expected to raise interest rates by another 0.5% to 4% on Thursday as the bank tries to stamp down on inflation, yet household budgets are already stretched with food, energy and mortgage costs having soared in the past year.
RUNAWAY FOOD PRICES
The biggest issue confronting shoppers right now is not one of choice or availability but the seemingly unstoppable rise of grocery prices and in particular fresh food prices.
The latest survey by the BRC, which analysed price data between 1 January and 7 January, showed average UK shop prices were 8% higher than a year ago, the sharpest annual increase since 2006 when the firm started tracking the data.
The biggest contributor to the rise was a 15.7% jump in fresh food prices, a full 0.7% higher than December’s increase, together with an 11.3% rise in ambient or tinned and packaged foods, up 0.3% from December.
‘Retail prices rose in January as discounting slowed and retailers continued to face high input costs’, said BRC chief executive Helen Dickinson.
Food costs are expected to fall this year, but, as Dickinson points out, retailers still face ongoing headwinds from rising energy bills and labour shortages, meaning ‘prices are yet to peak and will likely remain high in the near term’.
Mike Watkins, head of retail and business insight at NielsenIQ, which compiles the data for the BRC, warned that although supermarkets are supposedly passing along savings to customers, ‘until inflation starts to slow it’s unlikely that people will feel better about their personal finances or be willing to spend more and it will be a few more months before any fall in global commodity or supply chain costs work through to shop prices.’
WHO IS WINNING THE STORE WARS?
According to Kantar, grocery inflation climbed to a record 16.7% in January from 14.4% in December, adding a potential £788 to the average annual shopping bill.
Unsurprisingly, sales of own-label lines - which are cheaper than branded goods - jumped 9.3% in the 12 weeks to 23 January as supermarkets cut back on promotions and shoppers traded down.
‘Competition in the grocery sector is as intense as it’s ever been as retailers strive to retain shoppers’, says Kantar’s head of retail and consumer insight Fraser McKevitt.
‘The grocers have been boosting their own-label ranges especially, with sales of these lines growing consistently over the past nine months. January was no exception as own-label lines grew by 9.3%, well ahead of branded alternatives which were up by just 1.0%.’
Aldi was the fastest-growing supermarket for the fourth month running with sales up 26.9% in the period to 23 January, followed by Aldi with 24.1% growth.
The discounters took a combined market share of 16.3%, up from 14% in the same period a year earlier and almost a full percentage point ahead of Sainsbury’s (SBRY) whose share dipped to 15.4% against 15.6% a year ago.
Market leader Tesco (TSCO) saw its share slip to 27.5% against 27.9% a year earlier, but the biggest loser was private equity-owned Morrison whose share of grocery spending dropped to 9.1% against 9.9% previously.
