‘Greedflation’ is a term used to describe how companies are taking advantage of the rising cost of living to enhance their profit margins. Within the supermarket industry, it signifies the observable trend of essential grocery prices soaring, frequently due to the profit-driven motives of retailers and producers. For additional insights, we turn to Jamie Cartwright, a partner at Charles Russell Speechlys.
In recent months, the supermarket industry has been under intense media and public scrutiny for a dramatic increase in prices, leading to a flurry of claims about the rise of ‘greedflation’. This refers to companies taking advantage of consumer demand by raising prices in a manner that is deemed to be unjustified and hence profiteering.
However, a closer examination of the dynamics within the sector suggests that while price increases are evident, the narrative is far from straightforward and the accusation of profiteering directed toward supermarkets may well be misplaced.
The UK Competition and Markets Authority (CMA) recently cleared the allegations after a comprehensive two-month assessment. Plus, executives from all of the ‘big four’ UK supermarkets – Tesco, Sainsbury’s, Asda and Morrisons – have appeared in front of parliament to declare that their profits fell last year, with retailers’ own margins feeling the pinch of inflation.
The term ‘greedflation’ can indeed be provocative and create eye-catching headlines, but it also risks oversimplification. The reality is that prices across the board are on the rise due to broader inflationary pressures – so is it fair to lay all the blame on supermarkets?
Is inflation to blame?
At the heart of the matter lies a broader economic tide: inflation.
Rising consumer prices are influenced by a multitude of factors. The economic disruptions caused by the pandemic, along with the recovery efforts, have led to fluctuations in both supply and demand, contributing to inflationary pressures.
The fuelling of inflation is not solely confined to the food sector. It extends to energy, housing, healthcare and other essential industries. As these sectors experience cost pressures, businesses are compelled to pass on these increased costs to consumers, resulting in an overarching inflationary environment. In this context, the price hikes witnessed in supermarkets are not isolated incidents but rather reflections of the wider economic climate.
‘Shrinkflation’ has also played a role in shaping the narrative. This refers to the practice of maintaining product prices while subtly reducing package sizes, which is increasing the ongoing tension between maintaining profits and catering to consumer demands. Just take a look at the nation’s favourite biscuit: in February, standard packs of McVitie’s Digestives were cut from 400g to 360g, however, the price has risen by 20p to £1.80.
Supply chain complexity
The supply chain infrastructure and ecosystem that governs the distribution of products in the food and beverage industry is dissimilar to others. Unlike sectors such as ecommerce, where giants like Amazon have a direct gateway to the market and wield substantial influence and set market dynamics, the food industry relies heavily on long and complex supply chains.
With major food manufacturers such as Unilever, Kraft and Nestlé having a huge influence over product pricing, it’s important to recognise that their impact trickles down to retail environments and eventually to the consumer, with supermarkets having little choice but to increase prices to sustain margins.
Adding more pressure is the fierce competition between traditional supermarkets and their cheaper counterparts, like Aldi and Lidl, leaving less room for excessive price hikes. Some reports have indicated that supermarkets are not enjoying windfall profits; instead, they are engaged in a constant battle for market share, compelling them to maintain competitive pricing.
The supermarket industry is competitive, with various products vying for consumer attention and loyalty. This competitive environment should serve as a safeguard against unchecked price hikes and support the notion that, even in an era of inflation and challenging external factors, the industry cannot be dominated by ‘greedflation’.
The legacy of Brexit
The fallout from Brexit has undoubtedly compounded the current price rises. The effects of complex import and export conditions, coupled with a shortage of skilled labour – particularly truck drivers – have strained supply chains and driven up operational costs.
A recent report by the London School of Economics found that the UK had paid an extra £7 billion since Brexit to cover the extra cost of trade barriers on food imports from the EU, primarily due to extra paperwork and veterinary checks. Meat and cheese have been hit especially hard, given the high volumes imported from Europe.
Some commentators blame Brexit’s impact on the labour market for wage increases within large corporations, which add another layer of complexity to the ‘greedflation’ debate. Higher wages impact overheads for companies, which in turn affect pricing strategies.
The concept of ‘greedflation’ paints a somewhat simplified picture of the complexities at play within the supermarket industry. While prices are undoubtedly on the rise, a range of factors, from broader inflation trends and the impacts of Brexit to internal supply chain challenges, contribute to this phenomenon.
Recognising the multifaceted nature of this issue is key to understanding the dynamics that shape our grocery bills. As consumers continue to navigate this changing landscape, it’s important to protest and enquire – but let’s not be too quick to lay all the blame on the supermarkets.
© FoodBev Media Ltd 2023