The Chairman of Tesco has warned that “the worst is yet to come” on food price inflation as grocers and suppliers continue to face soaring costs.
Acknowledging the cost-of-living squeeze, John Allan estimated that prices in supermarkets could rise as much as 5% by the spring as energy and other expenses feed through to products on the shelf. He claimed that Tesco’s food price inflation in the last three months had been contained to about 1%.
“We are impacted by rising energy prices, our suppliers are impacted by rising energy prices. So the likelihood is that that inflation figure will rise,” Allan said.
He stressed that Tesco was doing all it could to offset cost pressures but highlighted that some people were having to choose between heating their homes and feeding their families. “That’s clearly not a situation that any of us should tolerate,” he said.
Figures released by Kantar last week showed that grocery prices in the UK rose 3.8% over the four weeks to 23 January. It said prices were rising fastest in categories such as savoury snacks, fresh beef, and crisps, while falling in fresh bacon, vitamins, and beer.
Separate data from the British Retail Consortium (BRC) suggested that food inflation had accelerated to 2.7% in January, up from 2.4% in December.
Wider consumer inflation is currently 5.4%, a 30-year high, and is predicted to top 7% this year.
Allan said: “I think the combination of increasing energy prices, the impact of National Insurance increases [in April] on people’s incomes, and to a much lesser extent increasing food prices, is going to squeeze the hardest-up still harder.”
The pressure facing poorer households was recently highlighted by food poverty activist Jack Monroe who said that basic everyday essentials were going up in price by more than the official inflation rate.
Allan said he could not speak for the rest of the industry, but it was untrue at Tesco. “Price rises depend on individual products – coffee is going up, but other things like the cheapest tin of baked beans in Tesco is cheaper than it was five years ago,” he said.
“As far as Tesco is concerned, we have 2,100 products on our lowest price. We’re either price matching against Aldi, or it’s our own exclusive at Tesco range. That number [of products] has been increasing in recent months rather than decreasing, so it’s not true.”
Meanwhile, Allan rejected controversial suggestions from Andrew Bailey, the governor of the Bank of England, that people should not ask for big pay rises because it was feeding into higher inflation.
Asked by the BBC if the company would be telling employees to follow this advice, Allan said: “No, absolutely not. I think that’s the wrong direction for people to go in.
“We are not telling people not to take a pay rise. We think our colleagues deserve pay rises. We have given 5-6% raises to our distribution colleagues, and we’re in the midst of negotiations, which will probably lead to a similar result for our store colleagues.”
NAM Implications:
- Good to have expectations managed…
- Plus reassurance to rivals that shelf prices increases are underway…
- Only problem is that Aldi & Lidl, each being subsidiaries of large global organisations…
- …are in a position to hold prices (even lose in the UK) at the expense of overseas operations…
- …to grow share in the UK at the mults expense.
