Happy new year, and now, back to business. If you thought the easing of food inflation before Christmas was a sign of relief for 2026, think again. The cost of living crisis has just received a steroid injection, and the management of margins is more vital than ever.
Food inflation dropping back to 3.6% from its August high of 5.1% would be significant, if not for the obvious seasonal skew. The importance of affordable offerings was heightened this festive season, with retailers battling around a £1.50-per-head Christmas meal. They don’t mess with pricing during this time – suppliers’ cost prices over this period were locked in back in July.
This is a function of the crazy but now normal 12-week notice period for CPI, lack of communication from retailers, and limited protection from GSCOP. CPIs don’t make it through to shelves over October-December, but my goodness they are coming in the new year.
At Sentinel, we train suppliers in the art and science of managing CPI rounds, and by extrapolation from what we know, I have twice correctly predicted eye-watering inflation rises. Here goes a third: the 2026 pricing round will filter into retail prices across late January and February, taking inflation back up to 5%.
More costs to come
The high last year was down to April’s National Insurance contribution changes and bracing for the effect of a new minimum wage. Suppliers have since held back pricing as long as possible, but further costs for labour and EPR are still to come, amongst other pressures. A knock-on effect is that we are seeing decline in volume, as reflected in the October and November ONS food Retail Sales Index (RSI), which tells the story of what’s actually being sold, rather than just price.
This signals that shoppers are buying less, trading down, or skipping non-essentials altogether. If volumes stay soft, fixed costs are spread over fewer units and unit costs rise again.
Making prices cheaper is a corporate stance increasingly aimed at shopper loyalty, but it’s the opposite of what buyers want. Branded suppliers have always faced pressure to be cheaper and are tactically contrasted with the lowest-price own label, but in truth buyers have always disliked their own cheapest on display (COD), labelling them as category killers for eroding those all-important cash profit KPIs.
Demonstrating a cash win when taking share from a competitor remains a classic commercial argument in selling, and it’s much easier at a higher rsp. Simply raising prices, however, risks choking off sales and reversing the intended effect, so more insight and effort should be focused on demonstrating how initiatives hold volume despite higher price.
The solution for 2026 involves finding ways to charge more and justify volume, i.e. to command a premium that target shoppers are willing to pay for your product’s points of difference. In an environment where volume is declining, brands must work harder to prove value, create differentiation, and develop shopper loyalty, not just rely on price and promotions. You won’t get buyers fighting you on this.
All in all it’s challenging – so I’m wishing you good luck navigating 2026.
David Sables is CEO of Sentinel Management Consultants
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