Supermarkets are pulling out all the stops to sneak in price hikes caused by the pound’s post-Brexit slump without consumers noticing.
Data released this week shows food prices are rising and wages are stagnant, leaving consumers increasingly conscious of the cost of the weekly shop. Meanwhile, the big grocers are keen to avoid another high-profile spat over more expensive jars of Marmite or shrinking Toblerone bars.
But with the cost of imports increasing sharply something has to give and supermarkets are using a range of tactics to deal with it.
First, they have sharply increased prices on a host of less prominent items.
From October last year to March 2017, the price of dental floss jumped 17 per cent, light bulbs are up almost 20 per cent and candles 29 per cent, according to research by price comparison site mySupermarket.
The price of household staples and big-name brands sticks in most people’s memories - to the point where the cost of milk has become a hackneyed measure of how out of touch a politician is, and public outrage ensues when a Freddo bar costs 5p more.
So supermarkets are banking on the fact that most people would find it difficult to pluck from their mind an accurate price for baby sterilising equipment (up 11 per cent), ink cartridges (13 per cent) or greaseproof paper (13 per cent).
David Oliver, a partner and head of retail consulting at PwC says, “all retailers will focus on those key lines that supermarkets benchmark themselves against. The 4 pint carton of milk being the prime example.”
The practice of targetting staples - known in industry jargon as Key Value Items - is the reason 4 pints of milk has been around £1 in major supermarkets for some time. It’s also the reason two pints costs nearly as much - it’s not used as a benchmark.
But supermarkets can’t keep absorbing across-the-board price rises by making lightbulbs more expensive. As import prices rise, supermarkets will be “very reluctant to be the first one to raise the milk price, says Mr Oliver. “But the question is how long can they hold on? At some point they have to move.”
Steve Dresser, director of consultancy Grocery Insight says retailers have to “pick their battles against rising inflation”. This is not deceptive, he argues. “We all know prices go up and down”.
“A bigger problem is shrinkflation by leading brands where the price remains the same but the pack size is reduced. This is harder to adjudicate for the customer”.
He points out that Mars has already shrunk its chocolate bars twice since the Brexit vote. The makers of Doritos, Peparami and Coco Pops have all come under fire for quietly downsizing their portion sizes.
Christian Mole, executive director at EY, says shrinkflation may be giving diminishing returns to supermarkets (as well as customers) given recent media highlighting but pointed to another tactic in the pricing armoury, known as anchoring.
He explains: “If there are three options at say £2, £4 and £10, consumers will generally pick the £4 option. The £10 option is there to “anchor” a shopper’s initial price impression, and induce them to buy the slightly more expensive (and higher margin) option,”
Least ethical supermarkets
Least ethical supermarkets
1/11 11) The Co-operative
With an 11.0 rating, the Co-op comes out as the most ethical supermarket
2/11 10) M&S
At 10, Marks and Spencer is relatively high
3/11 9) Ocado
Delivery service Ocado's motto is "quality food that doesn't cost the earth"
4/11 8) Waitrose
Waitrose was the 4th most ethical on the list
5/11 7) Aldi
Aldi surprisingly beat some of its up-market rivals
6/11 6) Sainsburys
Sainsburys received a score of 9 for environmental ethics
7/11 5) Morrisons
Morrisons is the 5th least ethical supermarket in Britian
Tesco was the 4th least ethical, with an environmental score of 7
9/11 3) Iceland
Iceland was the third least ethical
10/11 2) Lidl
Lidl was Britain's second most unethical supermarket for its impact on the environment and its reputation for throwing away unused food.
11/11 1) Asda
Asda is the least ethical, Ethical Consumer added: "In most cases your local independent grocery or wholefood shop will be the most ethical place to shop."
Tesco vowed on Wednesday to do more than its rivals to absorb price rises, but supermarkets have almost no room to manoeuvre. Years of price wars have left them with wafer-thin operating margins. Tesco’s results showed margins of 2 per cent, compared to closer to 5 per cent a decade ago, Mr Oliver said.
At the same time the pound has fallen by more than 15 per cent against the dollar, and by around 10 per cent against the euro since before the EU referendum.
Whether it’s shrinkflation, anchoring or old-fashioned price hikes, one thing is apparently inevitable: consumers will be paying more for less.Reuse content