If Christmas 2021 were a product for the UK supermarkets, it would have been a premium range, prosecco-laced pud. Is 2022 shaping up to be a value bag of pasta?
Buoyant festive trading capped a good couple of years for supermarkets, since the strategic masterstroke of having most competition closed prompted more eating at home and bigger baskets with more treats. The typical Christmas splurge was boosted by the advent of Omicron, with strong growth in premium ranges from Tesco’s Finest to Iceland Luxury.
Still, the mood may be changing. Food writer and anti-poverty campaigner Jack Monroe tweeted last week about the shrinking value range and big price rises on the cheapest products in her local store. One response was that Monroe’s broader point — that the poorest and most vulnerable in society are suffering higher inflation — doesn’t look right: ONS data suggests that inflation is being experienced at similar, high levels across income brackets.
But it’s worth paying attention to Monroe, whose voice and experience carries weight. (Who can forget the pictures of pathetic food parcels sent out in lieu of free school meals in lockdown?) Poorer households, which spend a bigger share of income on non-discretionary items such as food and energy, are obviously less able to absorb rising grocery prices. The looming jump in the energy price cap could triple the number of English households spending more than a tenth of their budget on fuel bills to 27 per cent of the total, according to the Resolution Foundation.
Resolution suspects that the price and availability of different supermarket value ranges aren’t well captured in official inflation numbers. A New Statesman tool shows in some areas, like fruit and veg, cheaper products have risen more in price than the median but in other staples that isn’t the case. Monroe plans an index to track this, and cited examples from her local Asda, such as pasta, which has risen from 29p a year ago to 70p.
But, argues Steve Dresser of Grocery Insight, “these are ranging decisions being taken by certain supermarkets in certain stores. You can’t extrapolate across the market.” Asda, taken private last year by the Issa Brothers and TDR Capital, has said it is reducing the overall number of products it stocks. Yes, its SmartPrice range has fallen by about 40 lines since 2020. But, the chain says, it is the same as a year ago, albeit the full 200-plus strong range is only available in store, with about half that online.
Consistency matters and there is scope for sticker shock elsewhere. Tesco, which should be the most predictable of the Big Four with about 650 products matched to Aldi prices, took flack last year when it switched its Metro format stores to Express, with higher convenience pricing. Sainsbury’s, which matches Aldi prices on about 250 lines, has generated price hike headlines as products move in and out of the promotion, or as its eight-week PriceLocks finish. Higher levels of inflation mean bigger, more noticeable jumps as offers end. Value ranges, which have gross margins of at most 20 per cent, compared with premium ranges at closer to 40 per cent, according to one ballpark estimate, may come under more scrutiny as input costs rise.
What is true is that supermarkets have put more energy and care into value ranges in recent years: out went the no-frills, basic offerings seen as low quality; in came cutesier branding (such as Woodside Farms or Mary Ann’s Dairy) aping the success of Aldi and Lidl. That has, to some extent, been supplanted by price-matching schemes on frequently bought staples, whether cutesy value or normal own brand.
This, of course, was because after the financial crisis complacent supermarkets defended healthy profit margins while the discounters ate their lunch: the interlopers’ market share went from about 5 per cent in 2008 to 15 per cent. The sector, says everyone you ask, is much sharper on prices now. The gap between the big supermarket chains and discounters has narrowed; market shares have stabilised.
The supermarkets, helped by promotions that are now overwhelmingly linked to loyalty cards, have spent years persuading customers that it’s not really worth shopping around. In 2022, that will become a harder message to maintain.
helen.thomas@ft.com
@helentbiz
Source: Economy - ft.com
