...but the drive behind value own label is hardly an inflationary factor, says Kevin Hawkins
What goes around comes around. The latest BRC report on food inflation suggests that, while falling, the rate of increase is still well ahead of consumer prices generally. In the rest of the EU, the gap between the two indices is much narrower and, at barely 2% in the year to the end of May, its average food inflation compares very favourably with our 8% over the same period [data from Eurostat].
Why the difference? Sean Poulter (he of the Daily Mail) has no doubt - it's those grasping supermarkets again. He claims the big four are inducing shoppers to switch from the big manufacturers' brands to their own-brand value lines on which, he opines, they make more profit. But these margins are, he contends, made at the expense of suppliers, many of whom "have been driven close to bankruptcy". As a result, the big four are making more money than ever. "Rip-off Britain" rides again.
Try again, Sean. First, there is a strong historical correlation between exchange rate movements and farmgate prices in the UK relative to those in the eurozone. Sterling has depreciated by about 25% against the euro over the past two years, increasing the cost of both imported food and of commodities such as wheat whose prices are determined internationally. The impact of this inflation has been more severe and prolonged in the UK for the simple reason that we, on average, import 60% of the food we consume whereas the EU as a whole exports almost as much as it imports.
Second, according to the recent OC&C Top 150 Suppliers report in The Grocer last week, most big brand suppliers have done rather well over the past year, increasing their sales and margins. Own-brand suppliers have lost some margin but the study largely absolves the retailers of "cavalier" behaviour, arguing that they have been more accommodating than usual to their suppliers' cost inflation. A more potent cause of margin loss was slowness in pulling out of unprofitable categories.
Closing the food inflation gap with the EU has nothing to do with retailer margins. Nor is it simply a matter of producing more food in the UK and importing less. The EU runs a big deficit on its trade in primary products, which it balances with a surplus on high-value processed food and drink. Our relative weakness in this area must be tackled by the next government.
Kevin Hawkins is an independent retail consultant.
What goes around comes around. The latest BRC report on food inflation suggests that, while falling, the rate of increase is still well ahead of consumer prices generally. In the rest of the EU, the gap between the two indices is much narrower and, at barely 2% in the year to the end of May, its average food inflation compares very favourably with our 8% over the same period [data from Eurostat].
Why the difference? Sean Poulter (he of the Daily Mail) has no doubt - it's those grasping supermarkets again. He claims the big four are inducing shoppers to switch from the big manufacturers' brands to their own-brand value lines on which, he opines, they make more profit. But these margins are, he contends, made at the expense of suppliers, many of whom "have been driven close to bankruptcy". As a result, the big four are making more money than ever. "Rip-off Britain" rides again.
Try again, Sean. First, there is a strong historical correlation between exchange rate movements and farmgate prices in the UK relative to those in the eurozone. Sterling has depreciated by about 25% against the euro over the past two years, increasing the cost of both imported food and of commodities such as wheat whose prices are determined internationally. The impact of this inflation has been more severe and prolonged in the UK for the simple reason that we, on average, import 60% of the food we consume whereas the EU as a whole exports almost as much as it imports.
Second, according to the recent OC&C Top 150 Suppliers report in The Grocer last week, most big brand suppliers have done rather well over the past year, increasing their sales and margins. Own-brand suppliers have lost some margin but the study largely absolves the retailers of "cavalier" behaviour, arguing that they have been more accommodating than usual to their suppliers' cost inflation. A more potent cause of margin loss was slowness in pulling out of unprofitable categories.
Closing the food inflation gap with the EU has nothing to do with retailer margins. Nor is it simply a matter of producing more food in the UK and importing less. The EU runs a big deficit on its trade in primary products, which it balances with a surplus on high-value processed food and drink. Our relative weakness in this area must be tackled by the next government.
Kevin Hawkins is an independent retail consultant.
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