Retailers will push the promotional envelope to deliver value to shoppers, says Clive Black

A new year. Time to make a fool of myself with predictions for the UK food retail industry.

Starting with people, we believe there will be no big moves at the top in 2011 following last year's remarkable series of changes, although there could be some movement among senior lieutenants.

The year is likely to be a slog for the consumer, with living standards falling. So, we see a continuum of the trends and processes witnessed over the past couple of years.

While prices may rise ahead of wages, food demand should remain resilient and possibly serve as a source of comfort for many; the affordable treat. This will sustain a debate on whether base price is more important than quality in all its guises (p+q=v, where v represents value) with 'q' possibly more robust than some might think.

Inflation will be a key issue in 2011: there have been food riots in Algeria already. For now, food inflation is largely manageable for the UK trade and we expect this to be the case for the first half of 2011. However, any 'stress' with the northern hemisphere harvest and food inflation could be the major issue for the industry and possibly the economy in the second half of the year. For now we forecast about 2%-4% food inflation up on our 0%-2% expectation for 2010.

Value to the consumer is still expected to be largely delivered through promotions as opposed to cuts in case prices the preferred route of the retailer and supply chain. If currently anticipated economic growth remains on-track and if the activity of the majority of employed households offsets the stress of those that may endure job loss, then volumes may improve in the second half of the year. That volume growth could yet lead to promotional participation easing.

With these revenue expectations we expect no price war but plenty of shouting. Accordingly, we do not expect special financial distress among retailers, but neither do we anticipate grounds for choruses of joy.

We now watch with interest basking in the glow of a glorious Ashes win and looking forward to the Rugby World Cup. We also welcome the avoidance of the disappointment of the England football team. Will the supermarkets ever sponsor such potentially overpaid, possibly ungrateful and maybe tarnished characters again?

Dr Clive Black is head of research at Shore Capital Stockbrokers.