Retailers will get an extra two weeks to change prices in-store after VAT returns to 17.5% on 1 January. Under current rules, store owners have 14 days to amend all prices, but a government consultation is set to extend this to 28 days to aid hard-pressed c-stores.
However, manufacturers are price-marking a large share of stock destined for independents in advance, adding to complications for c-stores. A higher proportion of stock in c-stores is eligible for VAT than in multiple retailers, including confectionery, crisps, alcohol and cigarettes.
While retailers will be legally entitled to sell stock above the marked price for 28 days, they do not relish the prospect of persuading customers to pay more than the label indicates.
"Customers will accuse us of overcharging them, even if they understand that VAT has risen," said Robert Mulholland of Whingate Stores in Pudsey. "Shoppers will think because we bought the stock before VAT went up we're somehow robbing them."
Price-marked packs not sold by the end of the 28 days will have to be sold at the labelled price. The issue will be particularly problematic on low-margin items such as cigarettes, where on some products forgoing the price gap of about 2% would wipe out any profit for the retailer.
Manufacturers are launching price-marked promotions across several ranges ahead of Christmas. Cadbury is launching a 39p price promotion across several key countlines; Mars has marked its Twix and Snickers ranges at 35p; and Booker is extending its £60m-a-year Euro Shopper range, which is largely price-marked.
Shane Brennan of the Association of Convenience Stores said the body had recently raised the issue with ministers, adding: "Even though it will be legal to sell above marked price, that's going to be a very hard sell in-store. This is yet another problem caused by this VAT change, [for] very little benefit."