Iceland Foods CEO Tarsem Dhaliwal has warned that the supermarket will have to increase prices to cope with the impact of the budget on food inflation.
In a rare exclusive interview with The Grocer, Dhaliwal said that he expected food inflation to reach 4% across the sector, as suppliers and retailers mitigated increases to the rate of National Insurance and minimum wage from April.
While he was reluctant to say how much Iceland’s own employment costs would increase by ahead of a presentation to bond holders in July, he said the supermarket – which employs more than 30,000 people – had a plan and would manage increases to its employment costs.
However, his “biggest concern” was the knock-on impact of the increased employment costs on food inflation across the sector. Iceland would have to pass on some of those costs to its value-focused shoppers, he conceded.
“The reality is that we have to be conscious of the fact that our suppliers are going to be passing the costs onto us, literally straight away,” Dhaliwal said. “We can’t absorb all that, I don’t think any retailer can, so there’s going to be food inflation.
“It’s going to be a market-driven thing, we’ve still got to remain competitive,” Dhaliwal said. “Consumers might end up with less items in their basket, still spending £10 but on less items.”
Supermarkets face £5.6bn rise in costs after budget
Dhaliwal is the latest supermarket boss to warn that the estimated £7bn increase in costs faced by retailers as a result of Rachel Reeves’ autumn budget would push up food prices. Latest figures released by the BRC-NIQ Shop Price Index this week revealed the rate UK food inflation reached a nine-month high in March, of 2.4%.
Meanwhile, Kantar’s monthly inflation figures this morning showed prices rose 3.5% in the four weeks to March 23, a two percentage point increase on the previous period.
Morrisons CEO Rami Baitiéh and Sainsbury’s Simon Roberts have also warned that price rises will lead to job losses in the sector, and have both since announced plans to cut hundreds of roles. In response to the warnings, Iceland’s executive chairman Richard Walker accused companies of “complaining” over the budget. ”It was a tough budget, but we adapt,” he told The Telegraph.
Iceland has no plans to cut any jobs. Instead, following a strategy that has helped it regain market share and grow volumes over the past 18 months, it would seek to manage some of the price increases by investing in its own labels, which it manufactures in house.
It will also continue to ramp up its programme of multibuy promotions, and this week launched 450 new in-store promotions. Offers include eight products for £10, half price five for £5 and buy two get one free.
Asked whether he was worried about Iceland’s prospects of competing with a renewed supermarket price war sparked by Asda and Morrisons as they sought to rebuild market share, Dhaliwal said: “I’ve been around now for 37 years and been through numerous price wars. We don’t change direction dramatically.
”We’ve got unique products in our exclusive ranges that you can’t buy anywhere else, which gives us some flexibility,” Dhaliwal said.
“You can change promotional activities. There’s lots of tunes we play in terms of managing that margin.”
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