Latest Data Shows Record Drop In Food Prices

Despite concerns that the fall in the value of sterling will drive up shop prices, latest figures from the BRC and Nielsen show that deflation remains entrenched across the retail industry.

Overall shop prices in September were down 1.8%, a slightly slower rate than the 2% fall in August. However, food prices fell a record 1.3% (compared to 1.1% in August) as the price war between the supermarkets and discounters continued to rage.

The slight slowdown in overall deflation was driven largely by non-food goods, where prices fell by 2.1% in September compared to 2.5% in August.

Mike Watkins, Nielsen head of retailer and business insight, commented: “With a new round price cuts by supermarkets in September and fresh foods also promoted to encourage visits, this has helped maintain deflation in shop prices.

“However, the warm and late summer weather was a challenge for many in the non-food channel so we may well see further price discounts as we move into October.”

Helen Dickinson, Chief Executive of the BRC, added: “We are now in the fourth year of falling shop prices, so the record-setting run of shop price deflation continues, which is great news for consumers. This is as a direct result of the intense competition and transformational change in the retail industry, with consumers having access to more choices and greater ability to compare prices than ever before.”

However, with sterling hitting a 30 year lows against the dollar this week, the BRC expects prices to start rising soon. “The low levels of shop price deflation we have witnessed over the last few years will not be around for much longer, and we expect shop price deflation to be closer to zero at the turn of the year,” the BRC said.

Separate data on the grocery sector from price comparison website mySupermarket also showed that the supermarket price war was driving down the cost of everyday food & drink. Its analysis of a basket of 35 popular items showed that the cost was 16p less in September compared to the previous month, at £83.19. It was also more than 3% cheaper than it was at the same time last year.

MySupermarket chief executive Gilad Simhony commented: “The price wars between the retailers appears to have overcome any inflation issues caused by the weaker sterling,” adding that both consumer confidence and prices were stabilising which is a positive sign for the grocery market.

NAM Implications:
  • Where at: This is really about warning the public that present prices will have to rise as pent-up cost increases and currency-change import costs emerge on-shelf i.e. retailers and suppliers are in no position to absorb further cost increases, period
  • Where headed: The price war will hold retail prices until the New Year, when price increases across the board will be unstoppable…
  • Effect on you: Negotiating price increases will still be a difficult call, and all rises will need to be evidence-based i.e. the moves will maintain current profitability with little in terms on incremental gains
  • Action: This 3-month window should be used to reassess the relative competitive appeal of every SKU from the POV of each customer, stripping out any non-competitive offerings that cannot justify its place in your portfolio.  Then construct price-increase arguments for what remains… Or let the market do it all on your behalf…