Bosses of the UK’s biggest supermarkets have insisted they aren’t making excessive profits from soaring food and fuel prices, as cash-strapped consumers struggle to afford essential goods, writes Mattie Brignal.
The executives of Tesco, Sainsbury’s, Asda and Morrisons denied being involved in a “grotesque display of profiteering” during a grilling by MPs on the business committee today.
The committee’s central thrust was that the big supermarkets aren’t passing on reductions in wholesale costs to customers quickly enough, and using the cover of inflation to boost profits.
The committee’s steeliest inquisitor and chair, Labour MP Darren Jones, quizzed Tesco boss Gordon Gafa on why the company’s profits had risen from £1.6bn in 2018/19 to £2.06bn in 2021/22.
Gafa instead described how his firm’s profits were in fact down in the most recent financial year, and sat on average at a healthy yet comparatively modest 3 to 4p per pound.
“We have not made more profit year-on-year,” he said. “We have actually made 7 per cent less profit versus our last financial year. It’s important to be clear on that from the outset.” Later in the exchange, Gafa made clear he had been talking about “operating profit”, while Jones had been talking about pre-tax profit, which is calculated differently.
Does the profiteering thesis hold water? In a word, no. Sainsbury’s retail profit margin was 3.4 per cent in 2019/20 and 2.99 per cent last year. Tesco, meanwhile, posted a 3.8 per cent margin in 2022/23, compared with the 5 per cent it used to aim for pre-pandemic.
Last month, the Competition and Markets Authority (CMA), the UK’s main competition watchdog, dismissed the profiteering suggestion, saying it had “not seen evidence pointing to specific competition concerns in the grocery sector”.
Yet even if supermarkets aren’t exploiting inflation, the squeeze on consumers is all too real. The prices of staples have soared in the last year, with baked beans up 22 per cent, bread 13 per cent and eggs 19 per cent.
And the cost of food is still rising, albeit slightly less quickly. The British Retail Consortium’s latest figures released today show annual shop price inflation easing to 8.4 per cent in June from 9 per cent in May.
The rise in costs of basics such as food are felt especially acutely by poorer households who tend to spend a higher fraction of their income on essentials. The ONS has found that Brits are now spending a fifth more with food stores than before the pandemic – but getting 3 per cent fewer goods in return.
With an election on the horizon, this painful squeeze spells bad news for the Tories. The latest polling from UK Polling Report found that half of UK voters hold the government primarily responsible for runaway inflation. A full 50 per cent of those polled laid the blame at the government’s door with 32 per cent holding the Bank of England responsible.
Unfair? Perhaps. Yet while monetary policy is predominantly carried out by the independent central bank, Rishi Sunak’s relentless repetition of the pledge to halve inflation by the end of the year will have helped to strengthen the link in voters’ minds between sky-high inflation and Tory policies.
Whether the PM and his party will bank an equivalent amount of credit if the target is met seems highly unlikely.
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