Blatant greedflation: are suppliers or retailers to blame?

Blame my Viking genes – hygge and all that – but I’m obsessed with candles, particularly tea lights, so I always have a good stash stored away. Such is my enthusiasm, I buy them by the kilo so I’m hawk-eyed about digging out the best prices. Homebase has been my go-to store for value for money. No longer – its prices have soared. On a shopping visit earlier this week to stock up for Christmas, Homebase was selling a puny pack of 20 for £2 – about double the price of a few months ago. Instead I headed for the nearby B&M where a pack of 70 was £3 – bingo.

The price of candles is one of many basic household goods which seem to keep on rising, despite the supposed fall in inflation. Candles are not the only items getting pricier. Builders and contractors are also reporting that the costs of even the most prosaic of building products like plywood are on the upward march again despite falling energy prices and other supply chain factors, once blamed for the steep increases. 

It’s a similar picture with food prices which have over the last year proved to be particularly sticky despite the fall in fertilisers and energy costs which should be holding them down. Food prices are indeed down from the 30 per cent high seen a year ago but food inflation is still at historically high levels, despite falling to 10.1% in October 2023. 

Yet if energy prices are coming down, and so too are other commodity inputs, why are prices proving so stubborn, and in some cases, rising? Where are the price rises coming from in what many are still citing is blatant greedinflation? Who is to blame, the suppliers or retailers?

The latest report from the Competition & Markets Authority is pretty clear about who to point the finger at: it claims that the manufacturers of some popular food brands have raised prices by more than their costs. CMA boss, Sarah Cardell, says: “Food price inflation has put huge strain on household budgets, so it is vital competition issues aren’t adding to the problem. While in most cases the leading brands have raised prices more than their own cost increases, own label products are generally providing cheaper alternatives.”

Indeed, the CMA says that about three quarters of branded suppliers have been making more profit on individual products, specifically baby milk formula, baked beans and pet foods. The food manufacturers are denying all such claims.

The CMA’s findings come from an analysis which looked at 10 categories covering milk, poultry, mayonnaise, baked beans, chilled desserts, ready meals, and lemonade. It claims that, by putting up prices by more than their costs, the food makers have “contributed to higher food inflation.” 

If that’s the case, the food manufacturers may well have shot themselves in the foot. Instead of buying the higher priced branded goods, consumers have increasingly turned to buying own-label products as evidenced by the recent results of many retailers. And this in turn means that the branded goods makers have lost market share. 

The market for baby milk formula – dominated by Danone and Nestle – is the one exception, understandably so, as new parents are unlikely to risk trying unknown labels. So it’s positive that the CMA is going to investigate further. 

Former Tesco chairman John Allan will be relieved. His robust defence of supermarkets has been more than vindicated. Earlier this year, Allan went on the attack after supermarkets were being blamed for the food rises, arguing that it was food producers which were behind the price rises, and not the supermarkets. 

What’s more,  Allan said it was “entirely possible” that some food firms were profiteering from inflation to the detriment of customers and he should know. Tesco has its own team of staff who monitor the suppliers, and look at the costings of what goes into making various products. 

The bust-up led to Tesco falling out with a number of suppliers such as Kraft Heinz after challenging them over the price rises for baked beans and tomato ketchup. With nearly a third of the UK food retailing market, Tesco had the clout to do so: it stopped selling Heinz products until they agreed on prices. 

Even so, the CMA’s Cardell is not letting supermarkets entirely off the hook. The recent analysis also shows an increase in the use of loyalty scheme pricing by supermarkets, which means that price promotions are only available to people who sign up for loyalty cards. With household budgets so tight, shoppers have been signing up like crazy to these loyalty cards and it estimates about 90 per cent of all shoppers are now signed up. 

What worries Cardell is that the supermarkets are using the cards to keep hold of their customers yet make it more difficult for shoppers to compare prices between retailers so there is less price transparency. For example, Tesco has more than 8,000 products that are cheaper for holders of its Clubcard, while Sainsbury’s now has about 6,000 items in its Nectar scheme which represents a big chunk of a retailer’s range as they typically stock more than 20,000 products.

Which is why the CMA will be launching another review into loyalty cards and baby milk pricing in the new year. The competition watchdog wants to establish whether the milk suppliers are acting as a duopoly and whether the supermarkets are offering two sets of prices, thus discriminating against those who don’t have a loyalty card? Cardell’s record to date is feisty so expect to see some changes. 

My own view? Scrap loyalty cards, vouchers and all the other gimmicks which retailers use to entice shoppers into their stores. Just cut prices. Shoppers are savvy: we’ve worked out that to get the best deals you need to shop around: B&M for candles obviously, QD for cookware and stuff, Homebase for plants, a mixture of Tesco and Aldi for everyday household stuff and Waitrose for the more special foods you love the most.

Paying at the till has become frantic for both shopper and assistant, as they ask whether you have a loyalty card, car park ticket or have seen the latest vouchers. What we want is transparent and clear pricing rather than a Stasi-style inquisition.

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