Consumers may trade down or chose cheaper products or shopping venues when the economy is in the doldrums and money is tight, but the basis human need to eat remains. This means that there is every more competition on the retail scene to capture consumers’ spending power.
The BRC-Neilsen Shop Price Index (SPI) has reported annual food price inflation of 7.9 per cent in April, compared to 9.0 per cent in March. Food inflation was at a high in August 2008, mainly due to peaking commodity prices in June, which have since dropped. In a bid to curb inflation, VAT was slashed to 15 per cent in December 2008.
Although food inflation is still high, and is a factor driving inflation across the economy, Stephen Robertson, director general of the BRC, said the latest data indicates worst could be over. Since the sterling has stabilised, grocers are renegotiating contracts and the weak economy is causing more competition in the grocery sector.
“Increased promotional activity by food retailers compensated shoppers for the contributed impact of inflation,” said Mike Watson, senior manager at Nielsen.
However SPI said there are still some factors keeping inflation up, such as sterling’s depreciation against the euro. Further depreciation could have an impact on inflation in both fresh and ambient foods, it warned.
Robertson added that rising farmgate prices for meat and some vegetables “are some of the main factors working against retailers’ attempts to keep overall shipping bills down”.
According to the SPI, most of the margins are currently held in the UK farming industry, since DEFRA recently reported a 36.3 per cent increase in total income for UK farming in the year to February. “Input costs were far outweighed by an increase in the value of output,” said the SPI.