The price of your weekly food shop is only going in one direction – up

The weekly food shop is where many of us feel the pinch of rising living costs most acutely, and the pain is about to get a lot worse, according to supermarket bosses. Higher costs for energy, shipping and wages are all feeding into the rising prices that big retailers pay for goods. That could lead to a 5 per cent jump in grocery prices this spring, said Tesco chair John Allan.

The boss of industry lobby group the British Retail Consortium echoed those sentiments, arguing that businesses were doing what they could to keep prices low. When asked if retailers should take a hit to their profit margins in order to curb prices for customers, Helen Dickinson told BBC Radio’s Today programme: “I think we’re already seeing quite a lot of that – I mean we saw lots of that during the course of the early days of the pandemic where profits were deflated and I certainly think the context, certainly for retail businesses, particularly in food, is they absolutely monitor prices almost on a daily basis.”

It might be the source of some annoyance to hear one of the country’s largest companies, boasting billions of pounds of revenue, plead that it has no choice but to pass on price inflation to customers. Supermarkets have not done too badly from the pandemic, after all. In January, sales were up 8 per cent on pre-pandemic levels. Couldn’t shareholders take a hit for once? Perhaps. But the Tesco chair has a point.

In the 1990s, profit margins of 7 per cent were common for big UK grocers. Now, propelled by competition from the likes of Aldi and Lidl, margins of 2-3 per cent are the norm. In real terms, the price of a weekly shop has been falling for decades. The Big Four supermarkets have sought to cut costs in recent years, laying off staff, replacing tills with self-checkout stations, closing deli counters and simplifying the range of products they sell.

While it’s true that supermarkets sales have been boosted during the pandemic by the closure of restaurants, big retailers have also shelled out hundreds of millions to keep stores Covid-safe. And they’ve been impacted by mass staff absences. Chains have been forced to go on a hiring spree – reversing the previous trend of cutting staff – because a shift to online sales has necessitated a new army of pickers, packers and delivery drivers.

While revenues have boomed, profits have not necessarily followed. The price that supermarkets charge customers for online deliveries often does not cover the cost of providing them, and sales of more profitable non-food lines such as clothing fell during the pandemic.

Food producers are under intense pressure to supply goods at ever-lower prices despite rising costs for everything from fertiliser to labour. There is only so much that farmers can be squeezed before they can no longer continue to operate. In short, much of the fat has been trimmed and there is little room to absorb higher costs. The price of that weekly shop is only going in one direction: up.