How the psychology of price hikes has played out on supermarket shelves

Shoppers were left blindsided in supermarket aisles this year. Faced with higher prices, smaller pack sizes, discontinued lines and even reformulations of their favourite recipes, at best they’ve been bemused. At worst, they’ve been “absolutely raging”, as one social media user put it.

In August, as price inflation rose to 5.1% in food and non-alcoholic drink – the highest rate since January 2024 and 1.3 percentage points ahead of overall UK inflation – cries of “shameful,” “greedy” and “unforgiveable” were lobbed at supermarkets and suppliers.

“Why is the cost of food so high?”

“How am I supposed to feed my family?”

“What are they thinking?”

These are fair questions. After all, the expectation was that 2025 would mark a turning point. energy costs had stabilised and the World Bank’s food price index was projected to decline throughout 2025 as grains, oils and other key commodities all fell in price.

Instead, it’s been a year of sustained price inflation in almost every category, and required supermarkets and suppliers to roll out the full playbook of tactics in response. What thinking has led to these often-controversial decisions? And, crucially, what can this year’s bumper Top Products Survey report tell us about their impact on performance, for better and for worse?

The uptick started almost immediately after the 2024 general election. In June, food inflation had fallen below 2% for the first time since 2021. And “pretty much since then we’ve seen upward price pressure”, says British Retail Consortium economist Harvir Dhillon.

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In January, food inflation accelerated from 2% to 3.3%. Eight months later, in August, it hit its peak of 5.1%. Even in October, when it fell to 4.9%, consumer price inflation fell faster to 3.6%, making food and drink the biggest driver of consumer price increases in the UK.

There were several reasons for all that food inflation. For one, higher commodity costs continued to play a significant role for many categories. Cocoa prices, for example, hit a 60-year high of $10.75 per kilo in early 2025 due to poor west African harvests, blighted by both extreme weather conditions and swollen shoot virus.

Low dairy production levels, due to challenging weather conditions in 2024, also squeezed supplies of milk, cream and butter, pushing up costs.

And, of course, the inauguration of US president Donald Trump in January caused havoc across global markets, his punitive tariff regime bumping up costs on ingredients like bananas and coffee, as well as packaging materials like aluminium.

Political manoeuvres

However, “what has differentiated this food inflationary episode, I think it’s fair to say, is the policy-induced element behind it”, says Dhillon.

From April, two core government policies took effect. First, the employer’s National Insurance (NI) rate increased from 13.8% to 15% while the threshold fell by nearly 50% to £5,000. Second, the national living wage for those aged 21 and over rose 6.4% to £12.21.

The changes are set to cost the total food and drink industry – which employs about four million people – billions. The change to NI, in particular, was a shock, says Dhillon. “I think there was a sense of optimism once the government came in that business could at least have an honest relationship with the government, that both would be straight with one another. What shocked retailers was the scale of the increase.”

While higher input costs from commodities tend to hit some categories and some parts of the supply chain far worse than others, these policy changes hit everyone hard, adds Duncan Brewer, a partner in the retail & consumer products team at EY-Parthenon.

“You might be moving something around, but someone’s got to sit in the truck and drive it. You might be making a pretzel, but someone’s got to run the machine. You might be at a checkout, but someone’s got to oversee it. Whatever it is you’re doing, this wave of additional cost has come through,” he adds.

Faced with increased costs, doing nothing was not an option and the industry has faced a stark choice between higher prices or cutting costs. Or a combination of the two.

And make no mistake, stresses Liliana Danila, lead economist at the Food & Drink Federation, many food and drink businesses have gone under, despite their best efforts. Government figures show insolvency rates across food and drink suppliers from January to August 2025 were up 41% versus an 8% decline in other manufacturing sectors, and 5% decline across Great Britain as a whole.

For those businesses that remain, cost efficiencies in supply chains have often come ahead of introducing any visible changes to product, pack or price.

Mass redundancies

In October, for instance, Nestlé said it would cut 16,000 jobs over the following two years, in a further bid to slash its cost base. CEO Philipp Navratil admitted its effort to “foster a culture that… does not accept losing market share” would include “hard but necessary decisions to reduce headcount”.

Diageo, too, made headlines with news that its on-trade prices were to increase – including a 4.2% increase for Guinness Draught lines in May. But the brewing giant also embarked on a plan to achieve £625m in cost savings via reduced overheads, more targeted trade investment and A&P and supply chain efficiencies.

Much the same flurry of behind-the-scenes cost-cutting has been going on for grocery retailers, says Brewer. “If you look at the supermarkets, most of them have taken their counters out. They took the junior managers out. They took the middle managers out. They deployed technological solutions like iPads and AI. I think everyone’s gone through round after round after round of head office resizing.”

It’s getting increasingly difficult, says Danila. “In the five-and-a-half years since the pandemic hit, from when agricultural commodities globally started rising for the first time in July 2020, we’ve seen manufacturers introduce a series of [cost-saving] measures.”

That’s meant reviewing supply chains to trim waste, looking at cheaper ways to source ingredients or raw materials, and renegotiating contracts, adjusting volumes to bring prices down.

“Many members have also told us that they’ve significantly reduced training or marketing budgets, or both,” adds Danila. “Again, to streamline their cost structures. They’ve also looked to adjust their product mix, maybe dropping a few that internally aren’t offering a very good margin.

“We’re now in a position where there are no more efficiencies because those supply chains have been reviewed for so long. And it’s only then that you are trying to push for cost price increases.”

The good news is that across the 126 categories the Top Products Survey measures, volume sales increased, albeit by only 0.8%. The bad news is the extra half a billion pounds in sales, to £167bn (+2.8%), likely doesn’t come close to covering the extra costs.

In categories most exposed to commodity cost increases, the impact has been bruising for suppliers as much as shoppers. In butter, spreads & marge, for example, value grew 7.6% but volumes fell 2.7%. And Arla’s forecast in February that a consumer backlash would dampen demand by 1% to 2% across its portfolio looks to have been conservative: across the four Arla brands captured by NIQ, volumes fell 10.1%.

A similar dynamic has also been playing out in chocolate confectionery. Values grew 9.2% but volumes were down 2.6% and 11 of the top 20 chocolate brands saw volumes fall as a result.

And when The Grocer revealed earlier this month that Maltesers were being sold for a higher price per kilogram than sirloin steak, there was no doubt a collective intake of breath at Mars Wrigley’s HQ in Berkshire, as much as shoppers.

Retailers and suppliers are all too aware that consumers have unwritten but ingrained price barriers and as these psychological hurdles have been broken, the more consumer loyalty falls away. According to research by Attest, the likelihood of consumers opting to switch to cheaper brands increased from 68% in November 2024 to 72% in November 2025.

“This is a double hit for brands: they lose some customers outright and erode trust among the rest,” says Attest’s head of strategic research Nick White. “Even where price sensitivity forces continued purchase, emotional loyalty is weakened, leaving brands vulnerable.”

Shrinkflation

All of which goes some way to explaining the extreme efforts suppliers have undertaken to veil price rises where they can, even via controversial means.

Mondelez is among those that opted to tweak pack size instead. Pouches of Roses, Heroes and Twirl are the latest to succumb to shrinkflation, reduced in size by 10% ahead of Christmas from 300g to 270g.

Others chose reformulation. In cakes and biscuits, Pladis has spearheaded a reformulation programme, with new recipes for its powerhouse McVitie’s biscuit brands Club, Penguin and White Digestives, substituting chocolate coatings with a ‘chocolate flavour’ alternative made using cheaper ingredients, such as palm oil and shea oil.

These alternative fats have greater price stability and more resilient supply chains and, according to Pladis, they performed well in consumer taste tests versus the original formulation, even providing a more “consistent coating”, the supplier claims.

For the biscuit maker, then, it was, again, a considered move to keep prices accessible. But, though the full impact likely can’t be seen in this year’s NIQ data – and the push towards healthier snacking is also a factor – a 16.6% decline in volume sales of McVitie’s may have senior leadership at Pladis questioning their decision. On the other hand, Nestlé followed suit for its Kit Kat Chunky White and more recently its Toffee Crisp and Blue Riband brands.

Making difficult decisions

No supplier wants to make such incredibly tricky decisions, stresses Danila at the FDF. Changing pack size, for instance, isn’t something decided on a whim.

“It costs businesses money to make an item smaller,” she says. “They have to sort out changes in a factory, buy new moulds, redo the packet, packaging and labelling. It’s a big decision.”

They’re often between a rock and a hard place, agrees Guy White, CEO & founder of Catalyx. “Manufacturers are being faced with the decision to either pass on the full cost to the consumer and risk reduced sales volume or reduce the most expensive ingredient to keep the cost stable and maintain a viable profit margin,” he says.

White can “see what’s driving it”, he says, but urges caution. “Reformulating to cut costs effectively breaks the contract of taste and quality the consumer has with the brand. If a consumer feels like they are not getting that same sensory hit and the flavour profile is compromised, brand trust will be eroded and so will perceived value. Brand equity can often be the ultimate casualty of this kind of cost-cutting exercise.”

Aaron Shields, executive director of experience strategy for EMEA at consultancy Landor, goes further. “Most brands responded to rising costs with familiar tactics: higher rrps, smaller packs, quiet reformulation,” he says. “But this year revealed their limits. The old playbook didn’t just show its limits, it triggered a trust recession. This is more than transactional disappointment. It’s a deep, systemic erosion of consumer faith in brands, fuelled by the perception that fairness has been jettisoned for profit.

“Covert shrinkflation and unexplained price hikes are felt by consumers as acts of betrayal. The dominant emotion is not just frustration – it’s the feeling of being deceived,” he adds.

It’s nigh-on impossible, of course, to definitively capture cause and effect when it comes to price hikes – or other tactics – and the choices shoppers are making in stores. Purchasing decisions are made as the result not only of price sensitivity but also shoppers’ priorities, such as health and sustainability. It’s a case of the products people routinely buy versus those they can live without, and also the value they place on convenience and consumer experience.

Healthy consumption levels

It is evident in NIQ’s data that demand remains dampened: volume declines have impacted nearly half (48.8%) of the 126 categories included in the Top Products Survey 2025. Even among those that did achieve positive volume sales, 43% experienced growth of 2% or less. Significant growth was confined to a smattering of outlying categories.

These exceptions speak to other factors weighing on consumer minds at the checkout. A major push towards healthy hydration and away from soft drinks and alcohol, for example, sparked value sales up 13.4% on 14.5% volume growth in bottled water.

Market leader Highland Spring added £43.3m (22.2%) fuelled by both its still water SKUs and its flavoured water range launched in 2024. “We have remained focused on meeting demand by continuing to evolve our brand and business,” says managing director Simon Oldham.

Ambient ready meals also grew steadily. Its value is up 20.5% on a volume rise of 13.9% off the back of demand for affordable alternatives to eating out.

There were also a few intermittent upticks throughout the year, points out Mike Watkins, NIQ head of retailer & business insight. A hot summer combined with an appetite for scratch cooking temporarily buoyed demand for fresh foods, for example.

But aside from these outliers, “all through 2025, we’ve seen shoppers look to save money,” Watkins says. “In the round, shoppers look at all ways [of doing so]. People will trade up, trade down, trade out, delay spend, buy only when there’s a price offer: all so-called coping strategies that are happening all the time.”

That meant the big brand rebound anticipated in 2025 largely failed to happen, Branded volumes only marginally outpaced own label: 1% versus 0.2%. And 47% of shoppers bought more own label than ever before, according to NIQ’s Private Label & Branded Products 2025 report.

These behaviours are only set to deepen. According to NIQ’s consumer research, shopper priorities shifted from health in the middle of the year, back to cost of living concerns by September. “You can see a kind of yo-yo there, of cost now being back at the forefront of consumer minds,” says Katrina Bishop, NIQ thought leadership manager for UK & Ireland.

“In fact, 63% of our households now say that they’re either severely or moderately impacted by the cost of living and that’s up from 56% the last time we asked.

“Consumers at this point in the year really are starting to feel the impacts of inflation and it’s coming through in their purchasing.”

And if demand is already on a knife edge in some categories, it seems reasonable to think that those brands perceived as having duped shoppers with changes in product size or recipe reformulations may have suffered more than most.

White says: “Shrinkflation has played a major role in consumer trust: 42% say they’ve stopped buying from brands that have reduced product size but maintained or increased prices, while a further 42% have continued to purchase such brands but say their trust has been damaged.”

Playing a dangerous game

Backs against the wall or not, a long-term strategy of pushing through rising costs to consumers is a dangerous game. It also isn’t sustainable, warns Brewer at EY-Parthenon. “You can’t cut your way to growth,” he says. “If your volumes are falling, it doesn’t matter how much cost you cut. The tide is going out faster than you can cut it.”

This is already shining through in retail market share, he flags. “You can pick out those grocers that are more cost-focused and aren’t necessarily investing in the proposition as much and they are the ones that are losing market share and struggling.

“The players that are spending their discretionary dollar on really good high-quality personalisation, making sure that their combination of classic old school retail 101 product, price and place is good: those are doing better.”

Personalisation as a tool to drive customer engagement has been a core strategic pillar at Ocado, for example, which hit its highest-ever market share in November, according to Worldpanel by Numerator.

Ocado posted 15.9% sales growth, its strongest rate in more than four years, despite its premium positioning. Price-focused Morrisons and Asda, on the other hand, are battling falling market share, with the latter’s like-for-like sales falling 2.8% in the three months to 30 September, while total sales fell 3.7% to £5.1bn, excluding fuel, it revealed this month.

‘There’s money out there’

Brewer’s same argument about investment also goes for brands, he insists. “The fascinating thing about the UK consumer at the moment is, whilst consumer confidence has tanked – it’s nearly as bad as it was in the depths of the pandemic – there’s money out there.

“Real wages have gone up quite a lot over the last few years, savings are up, and mortgage rates are not as high as they were a year or two ago. Yes, people aren’t happy about necessarily opening their wallets and spraying money out everywhere – but for the right propositions, they are.”

Which is why, though far less widespread, some of those brands that have doubled down on innovation, premiumisation or adding value via functionality, have had an outstanding year.

Take Vita Coco. It’s defied category-wide volume decline in juices & smoothies, surpassing £60m on volume growth of 28.6%. As competitors scaled back, it spent more on marketing, including a partnership deal with Team GB sprinter Zharnel Hughes. It also increased headcount and added to its portfolio with the launch of its Treats range of flavoured coconut waters earlier this year.

On-trend gut health brand Bio&Me had a bumper year, too. Its value sales soared 43.6% on volumes up 42.7%, in contrast to flat values (0.2%) and declining volumes (–1.5%) across cereals as a whole. “We’ve seen many competitors push through price increases – frankly, almost everyone – and shrinkflation has become rife,” says Bio&Me co-founder and CEO Jon Walsh.

Two things have allowed the brand to hold back on its own price increases “for as long as possible,” he says. One, its increasing scale facilitating larger ingredient buying volumes and better deals. And two, innovation. “By designing new products from scratch, we can keep our growth growing.”

And, though still only a small player at only a little over £2m, Tiba Tempeh achieved 352.5% volume growth – head and tails above the rest of its competition in meat-free. Its success was off the back of expanded distribution and a steady stream of new formats and flavours, which resonated with a plant-based consumer base increasingly interested in naturalness rather than meat-alikes.

“In a climate where some brands are cutting back or simply pushing through price increases to offset inflation, we’ve taken a different approach because we see a huge opportunity to lead tempeh category growth,” says Tiba Tempeh co-founder Ross Longton.

“We have been able to offset some costs through economies of scale and improved operational efficiency as volumes grow. We have also chosen to partly absorb costs to ensure Tiba Tempeh remains accessible at an appealing entry-level price point… We’re also committed to key NPD.”

The obstacles to investment

How likely it is that rest of the industry grows, rather than cuts, its way out of a crisis is a question that remains to be answered.

“I think the whole industry does agree that is the solution, but the business conditions we have right now just don’t make that possible because of the huge amount of costs,” says Danila at the FDF.

“Big global brands see the UK as quite unstable policy-wise and they’re concerned about making investments here. So I’d say the industry does want to [make investments] and understands the importance of growth and productivity. But with margins being what they are, it’s just really difficult right now.”

The coming year is unlikely to see those margin pressures faced by grocery brands and retailers disappear, either. Dhillon at the BRC anticipates inflation will “ease off” a little in the coming months. “I don’t think we’re going to see a further acceleration in inflation,” he adds. “My expectation would be that towards the middle of the year we might settle around the 3.5% mark.”

Long term, though, with climate change contributing to far more volatile food prices, “stickier food inflation [in future] is something that’s looking like a real possibility”.

In fact, nearly two-thirds (65%) of companies expect commodity price to increase in 2026, according to supply chain specialists Inverto, up from 48% last year. Only a handful (13%) expect prices to decrease.

That’s in addition to additional policy pressures. The full force of extended producer responsibility fees will come into play in 2026, for instance, after the first invoices were issued in October, and industry expertso estimate the scheme will cost as much as £2bn.

“I don’t think the macroeconomic situation is going to fundamentally improve,” agrees Brewer. “I don’t think consumers are going to wake up on 1 January, leap out of bed and say, ‘hot damn, let’s open the spending taps’. I don’t think the consumer is going to come to save the UK retail sector. The UK retail sector needs to save itself.”