Supermarket prices ‘to rise 5% in six months’: Justin King
“Around 40% to 50% of what we buy is sourced abroad in a currency other than the pound, so with the current rates of exchange we could expect those things to be about 10% more expensive,” King told BBC Two’s Newsnight programme last night (November 22).
“And, if that's about half of what we buy, then that means something of the order of 5% inflation.”
‘Profound change’
The plunging value of sterling would spark “profound change” for supermarkets, after years of broadly static grocery prices, said King.
Questioned about whether the changes would lead to the disappearance of a high street supermarket, King told the TV programme: “For sure it will happen – but I just can't tell you which one it will be.”
Supermarkets were expected to face the twin pressures of keeping prices to shoppers low – in a bid to counter the discount chain stores Lidl and Aldi – while absorbing increased costs.
Britain’s biggest supermarket Tesco recently found itself in a very public row with Unilever after the manufacturer tried to hike the price of its iconic Marmite and PG Tips tea in response to the falling value of sterling.
‘Unjustified price rises’
Tesco boss Dave Lewis subsequently warned its suppliers that tried to introduce “unjustified price rises” would be delisted.
Other manufacturers that have blamed price rises on the weak pound were crisp firm Walkers and Birds Eye.
Also, Toblerone faced a social media backlash when it reduced ‘the mountains’ in its chocolate bars to offset rising ingredient costs.
Meanwhile, King is now vice-chairman of the investment firm Terra Firma. He served as Sainbury’s ceo for 10 years before leaving the role two years ago.
Watch King’s Newsnight interview here.
Meanwhile, the UK food and drink sector could enjoy a £7bn boost if Chancellor of the Exchequer Philip Hammond decides to significantly cut the rate of VAT in today’s Autumn Statement, according to the insurer NFU Mutual.
The Food and Drink Federation’s view
“Food and drink producers and retailers typically operate on very tight margins in the notoriously competitive UK grocery market. Partly as a result of this competition, consumers have enjoyed falling food prices since 2014.
“The devaluation of the currency against the dollar and euro means all imported goods and services have become more expensive. Companies also face additional costs from the Apprenticeship Levy and the National Living Wage also on the horizon.
“Companies will absorb the extra costs as far as they can – by reducing product margins and overheads, reformulating the product in some way, investing in automation, or increasing export activity (although this will take time to bear fruit) – but most will reach a point where something has to give.”
- Food and Drink Federation director general Ian Wright
