New research from pricing specialist Simon Kucher has revealed the price to British businesses of low inflation during the past year.
British businesses suffered to the tune of £16bn in 2015 – the equivalent of £630 per household – while the cost to the food and non-alcoholic beverage sector was over £2.15bn. The third worst hit category, this represented an equivalent value of £85 per household – or 13.6% of the economy’s overall £16bn decline.
The impact to the food and non-alcoholic beverage sector has been caused in part by supermarket price wars, which have driven down the cost of groceries across a number of food and drink categories. Manufacturers are often hit the hardest, Simon Kucher said, as a result of this retailer-led battle.
Ahead of the release of the latest Consumer Price Index figures tomorrow, Simon Kucher also highlighted how the current low rate of inflation belies a rise in prices across much of the economy, temporarily offset by the combined impact of falls in supermarket prices as well as petrol and energy costs.
Mark Billige, UK managing partner of Simon Kucher, said: “The £630 average household saving in 2015 wasn’t distributed evenly. Some households pocketed more than others, depending on their lifestyle and spending habits.
“For instance, those who do a lot of driving, like their house warm, buy most of their food from supermarkets and enjoy a few drinks have been the big winners of 2015. Whereas those who used public transport, ate in restaurants or had takeaway food a lot, or who spent a lot of their income on educating their children, saw little benefit.
“For every winner there will be a loser, and in 2015 that was UK businesses. The £16.8bn consumer saving was financed entirely by companies, ultimately through lower margins.
“Most businesses put huge amounts of effort into selling more, and not enough effort into improving their prices. In fact, many rush to make discount after discount in the hope of selling more without fully understanding the consequences, often negative, on their profits.”
Meanwhile, the impact to the restaurant and hotel sector amounted to 2.9% of the total hit, while the combined alcoholic beverages and tobacco industry contributed almost 5% of the overall “consumer saving”.
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