UK grocery prices inching down? Sainsbury’s boss declares “food inflation is starting to fall”

05 Jul 2023 --- Sainsbury has confirmed what macro data has been showing for the last months, that UK food inflation peaked earlier in the year in March. The supermarket chain has signaled fresh food prices are accelerating, albeit at a lower pace, and that the packaged products’ rise in costs will show a slow down in the months ahead.

Nonetheless, UK food inflation, at 18.4% in May, remains stubbornly above the neighboring EU (15%) and Eurozone (13.7%), according to Eurostat. Furthermore, accelerating and pervasive prices have resulted in half of UK’s adults buying less food in recent weeks, according to data collected until June 25 by the Office for National Statistics.

Battle for price control
The situation in the UK remains complex as the battle to rein in on out-of-control prices continues. 

UK milk prices have come down in recent months.Last week, retailers were questioned about the food price rises in the UK’s largest supermarkets, with even Prime Minister Rishi Sunak weighing in on the debate to say shopping bills have “gone up far too much in the last few months.”

Moreover, the UK competition watchdog is stepping up its work to ensure retail markets work well and don’t harm consumers.

However, supermarket bosses were keen to reject any “profiteering” claims. 

But some headwinds that could propel prices remain on the horizon. Last week, a draft strategy by the UK Department for Environment, Food and Rural Affairs (Defra) showed it would impose a charge for every consignment entering the country from the EU. According to the Fresh Produce Consortium, importers won’t be able to absorb the additional costs, which will need to be passed to consumers.

Furthermore, a packaging levy and a new deposit return scheme could burden retailers and their customers with £4 billion (US$5.1 billion). Along with a rise in business rates, and the introduction of border controls in October, these policies could hinder efforts to combat inflation.

Other headwinds are high coffee, cocoa and sugar commodity prices. Nonetheless, the British Retail Consortium underscored last week that lower energy and commodity costs are starting to filter to the consumer. 

Sainsbury increases salesEarlier this year the UK experienced a shortage of some fruits and vegetables.
In its first quarter trading statement, which ended June 24, the supermarket sales managed to grow by 9.8% its sales, compared to last year, with its groceries up 11%.

The company says it plans to lower prices on most popular products to drive a return to volume growth.

“Food inflation is starting to fall and we are fully committed to passing on savings to our customers. Since March, we have invested over £60 million (US$76.37 million) in lowering prices, leading to price cuts across more than 120 essentials like bread, butter, milk, pasta, chicken,” says Simon Roberts, Sainsbury’s chief executive.

“Prices on our top 100 selling products are now lower than they were in March, against a market where prices have gone up. Customers have saved over £90 million (US$114.55 million) since we launched Nectar Prices – a discount app – in April.”

Furthermore, the removal of supermarket purchasing caps, put in place early in the year, as the country is no longer suffering from a shortage of fruit and vegetables caused by bad weather from exporting countries, has helped stabilize prices at stores.

However, Roberts highlights that prices won’t come down to previous levels as labor costs have increased, “the cost of producing food is clearly elevated from where it was a year or two ago.”

By Marc Cervera