The acceleration of food price increases in recent months has been a nasty shock to British consumers, who have become accustomed to seeing their groceries become cheaper relative to their household income each week.
According to the British Retail Consortium and NielsenIQ, UK grocery prices were 13.3% higher in November than the same month last year. Official ONS measurements are even higher at 16% for the same month. Prices have not increased significantly since the late 1970s.
All supermarkets say their prices are rising at a slower pace than the headline figures, but this doesn’t take into account shoppers switching to cheaper products or simply buying less. However, they also recognize that customers are feeling the pressure and are trying to save as much as they can. Some have publicly said they will reduce some of this year’s profits to keep prices competitive.
Main cost drivers
The biggest costs in the food chain are the 3 F’s: feed, fuel and fertilizer. Price increases are noticed first by farmers, then by processors, and finally by retailers and their customers from farm to fork.
Processors often buy raw materials in advance to avoid price increases. Charles Hall, head of research at Peel Hunt, said this means he typically takes six months or more for price increases to reach consumers.
The livestock industry has been hit particularly hard by rising feed prices, accounting for up to 70% of the cost of raising chickens and pigs. Prices for many staples have since fallen, but some processors are still completing deals agreed months ago with different terms.
In September’s interim results, convenience food maker Backbar said he expects “substantial” inflation to continue through 2023 after he forecast a 12-14% rise this fiscal year.