Supermarkets questioned by MP’s to explain explain high prices

Supermarkets questioned by MP’s to explain explain high prices

27 Jun    Finance News, News

Supermarket executives are being questioned by MPs over why food prices are still rising as some wholesale costs are falling.

The UK’s biggest grocers – Tesco, Sainsbury’s, Asda and Morrisons – are facing a parliamentary committee examining the cost of a weekly shop.

The price of goods continues to grow but not as steeply as in recent months, according to the latest figures.

Food inflation reached 14.6% in June, the British Retail Consortium said.

That is down from 15.4% in the year to May, but it does not mean prices are falling, just that they are rising at a slower pace.

British Retail Consortium chief executive Helen Dickinson said: “If the current situation continues, food inflation should drop to single digits later this year.”

However, food prices remain a key reason why the overall rate of inflation in the UK remains stubbornly high.

And with many hard-pressed households also facing rising rents or mortgage costs, there is pressure on the supermarkets to defend the high cost of shopping.

On Tuesday, MPs will grill senior supermarket bosses about food and fuel price inflation, asking if prices will come down this year.

Politicians, trades unionists and the governor of the Bank of England have all questioned why prices on supermarket shelves have not fallen as rapidly as the cost of some ingredients such as wheat.

They have suggested that retailers may be failing to pass on savings and are banking the profit instead.

The Competition and Markets Authority is examining the issue.

Supermarkets deny they are profiteering from high prices and claim their profits are being squeezed.

The grocers say they are cutting prices where they can, arguing falls in commodity prices take time to filter through to the consumer.

Most of the big chains have recently introduced high profile price cuts to staples, with Sainsbury’s on Monday the latest to announce it was investing £15m to reduce the cost of basics such as rice, pasta and chicken.

Tesco, Morrisons, M&S, Aldi and Lidl have all reduced prices on basic foods such as bread, milk and butter in the past few months.

However, some items such as milk and eggs remain relatively expensive compared to pre-Covid prices.

“These latest price cuts will help reassure customers that we will continue to pass on savings as soon as we see the wholesale price of food fall,” said Rhian Bartlett, food commercial director at Sainsbury’s, and one of the executives due to appear before MPs on Tuesday.

As well as pointing to recent price cuts, the executives are likely to tell the committee that not all commodities have been falling in price, said Ged Futter, a retail analyst and former senior buying manager at Asda.

“Yes, prices have come down for some things, but other things have gone up like sugar, potatoes [and] chocolate,” he said.

Wheat, which has fallen in price on global markets, is largely supplied from UK growers, and food manufacturers will still be buying last year’s crop at last year’s prices, Mr Futter said.

“They won’t get a new price until they get into a new contract. Just because prices have gone down globally that doesn’t mean the price here goes down immediately,” he said.

Similarly, cheese sold today has been made with milk bought up to 12 months ago, so won’t reflect recent falls in milk prices, he said.

Jamie Keeble, co-founder of sausage and burger maker Heck which supplies most of the major supermarkets, told the BBC’s Today programme that the price of pork was expected to remain high for the next 18 months.

He said the only way supermarkets could lower their prices was by asking suppliers to cut costs, but he added: “We’re certainly not in the position to start giving cost decreases on our products.

“At the end of the day, [the supermarkets] are going to have to take a cut in their margins if they really want to lower the prices on the shelf, that’s the only way to do it.”

The British Retail Consortium has previously said there is typically a three- to nine-month lag for price falls to be reflected in shops.

Mr Futter thinks supermarket executives will point to other costs affecting food retail, from rising wages to the added charges related to Brexit, such as veterinary certificates.

A study by academics at the London School of Economics last month found nearly a third of food price inflation since 2019 was due to Brexit.

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