Inflation. It's the last thing anyone needs right now. So multiple grocery retailers have been doing their best to downplay it, while bombarding the market with promotions.
Yet, while the falling price of oil and plentiful harvests have taken two of the key drivers of inflation out of the equation, there are still significant inflationary pressures in the system.
The first was the lag: the time it takes for lower raw material and energy costs to feed through the system. Second is supply and demand, and markets such as cocoa, tea and sugar remain out of kilter.
Third is the delayed pain of hedge positions. (These can have a positive or negative effect, depending on timings. Cadbury, for example, has saved itself from the crucifying 58% increase in cocoa prices thanks to a well-timed gamble, as we report on p17. But it won't last forever.) And yet another factor is red tape, with legislation around herbicide restrictions adding to the unnecessary cost, as I mentioned last month, of shipping virgin soya feed half way round the world to feed to, er, pigs.
But the biggest inflationary factor right now is currency. To offset this inflationary force, the supermarkets have tended to leave manufacturers to deal with currency fluctuations. Not surprising when you look at the yoyo-ing of the pound against the euro even this week.
Retailers are also cutting head office costs (as are manufacturers, with Diageo announcing a £200m restructure this week) to support heavy promotional activity, while steering shoppers in the direction of cheaper lines.
But as our story on p4 shows, supermarkets are also using promotions to push through price increases. There's a lot of noise about supporting customers with price cuts. But despite inflation, everyone is clearly determined to preserve margins. Might this even be the way to fund acquisitions?
Yet, while the falling price of oil and plentiful harvests have taken two of the key drivers of inflation out of the equation, there are still significant inflationary pressures in the system.
The first was the lag: the time it takes for lower raw material and energy costs to feed through the system. Second is supply and demand, and markets such as cocoa, tea and sugar remain out of kilter.
Third is the delayed pain of hedge positions. (These can have a positive or negative effect, depending on timings. Cadbury, for example, has saved itself from the crucifying 58% increase in cocoa prices thanks to a well-timed gamble, as we report on p17. But it won't last forever.) And yet another factor is red tape, with legislation around herbicide restrictions adding to the unnecessary cost, as I mentioned last month, of shipping virgin soya feed half way round the world to feed to, er, pigs.
But the biggest inflationary factor right now is currency. To offset this inflationary force, the supermarkets have tended to leave manufacturers to deal with currency fluctuations. Not surprising when you look at the yoyo-ing of the pound against the euro even this week.
Retailers are also cutting head office costs (as are manufacturers, with Diageo announcing a £200m restructure this week) to support heavy promotional activity, while steering shoppers in the direction of cheaper lines.
But as our story on p4 shows, supermarkets are also using promotions to push through price increases. There's a lot of noise about supporting customers with price cuts. But despite inflation, everyone is clearly determined to preserve margins. Might this even be the way to fund acquisitions?
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