Supermarket bosses: Yes, it's tough on High St - but inflation is not that bad

Simon English
15 May 2008

To Glance at the headlines, you might think shoppers are on the verge of rioting due to rising food costs. In some parts of the world - Cameroon and Senegal for instance - that has already happened, but we are probably some way from a free-for-all erupting at the local Waitrose.

Everyone agrees that food is getting more expensive, but supermarkets insist it is nothing like as bad as the official figures suggest. Unveiling annual results yesterday, Sainsbury chief executive Justin King was adamant that government measures of inflation don't allow for the competition in the sector and fail to pick up on the numerous buy-one-get-one-free offers.

He also says shoppers are simply buying fewer of those goods that have risen most sharply, so just because a loaf of bread is a third more expensive than it was a year ago, it doesn't follow that the weekly shop is costing 30% more.

Officially, prices of meat and fruit are rising at 8.5% and 7.4% a year. The supermarket industry, recently given a clean bill of health by the Competition Commission, says there's no way it has put the cost of chicken or oranges up by anything like that much.

Commentators usually claim that the Office for National Statistics is under-estimating inflation, but this could be one area where it is making things seem worse than they really are.

It's not that there isn't a genuine issue. The UN warns that the cost of basic foodstuffs such as rice is likely to keep rising until at least 2010. It blames higher energy costs, the effects of climate change and demand for biofuels.

Britain's supermarkets are not immune to any of these issues but the intensively competitive environment they have long bragged about could be keeping the worst of a worldwide phenomenon at bay for UK shoppers.

Supermarkets that were recently being attacked for fuelling the binge-drinking culture by selling lager at a loss can now claim, with some justification, to be genuinely on the side of the consumer.

It isn't just beer that is sold as a loss-leader. Marmite, toilet paper and shampoo all cost less than they did a year ago - so if you don't eat sandwiches but wash you hair twice a day, it's possible that your basket of everyday items is costing less than it did a year ago.

In reality, of course, an increasing amount of a typical family's monthly income is going on food.

£450 million of price cuts

Justin King, chief executive of Sainsbury: "We have seen a lower [inflation] figure than has generally been reported and that is because we have been doing a lot of work at Sainsbury's. We have invested £450 million in price over the last three years and we are running 10% more promotions than this time last year and that is helping customers to make choices week in and week out to manage their household budgets.

"What the headline rates of inflation aren't picking up is that all supermarkets, including Sainsbury's, are playing their part in this. Customers are making active choices about what to spend their money on."

9000 Items 'on promotion'

Sir Terry Leahy, chief executive of Tesco: "Despite inflation on some food products, Tesco has through lower prices and special offers already saved customers £400 million in less than three months.

"To help customers get through these tougher economic times we have invested heavily in cutting prices and done some great deals with our suppliers to bring the cost of shopping down further.

"Tesco now has more than 9000 products on promotion - the most number of offers at any one time in our history."

'We've already slashed prices'

Jason Gissing, chief financial and marketing officer at online grocer Ocado: "We realised back in March that the UK was heading for a recession. So we took a step to try to make life better for our customers. Everyone always says we are expensive, so we cut our prices to match Tesco.

"If you can buy a product from us, and can buy the same thing from Tesco, then we sell it at exactly the same price. That is now the case for over 5000 items we sell. Given that consumers are tightening their belts, this seemed like a good idea. For them and for us - because people start to realise that we are actually very competitively priced.

"There is no doubt that higher input prices are affecting businesses everywhere and this will eventually lead to higher prices. It will happen on the High Street, in restaurants, and in businesses like ours. We are affected by food prices and by fuel prices too. But our first step in this re-adjustment has been to cut prices to match Tesco, because they are the bellwether price-setter in our industry."