UK Retailers Invest in Price Reductions As They’re Accused of “Profiteering”

With UK shoppers being squeezed by inflation, the government has warned supermarkets about high prices amid calls for price caps that could devastate the industry.

BOE Enlisted to Target "Profiteering"

Food inflation in the UK rose by an annual rate of 18.4% in May, slightly lower than in April, but still showing the cost-of-living crisis is in full swing. Unsurprisingly, grocers are being accused of "rampant profiteering". Last week, UK Chancellor Jeremy Hunt once again announced that he was taking measures to scrutinise the food industry supply chain, announcing that the BOE would be looking at profits from food companies along the supply chain. The BOE does not believe that so-called "greedflation" has been a major contributor to rising food prices but would hold meetings with companies over the issue.

While paying more at the supermarket is a pain for British consumers, even The Guardian is pushing back on the notion that grocers are profiting excessively in the current circumstances. The Competition and Markets Authority (CMA) has been tasked with looking into potential abusive price practices, but it said it hadn't seen any evidence of concerns in the grocery sector.

If Not Profits, Then What?

Major UK retailers have reported declining profits in the midst of the cost-of-living crisis, facing higher input costs and slowing consumer demand for higher-margin items. Although, following Sainsbury's earnings report on Tuesday, there might be some light at the end of the tunnel. CEO Simon Roberts said that he's starting to see prices coming down in fresh products and expected packaged products to follow suit soon. This was after Tesco reported last month, saying that food inflation had peaked.

While announcing "scrutiny" of UK grocers, the Chancellor has stopped short of actually entertaining mandatory price caps, which are increasingly talked about in Whitehall. The move now seems to be towards leaning on supermarkets to agree to voluntary price caps in a model similar to France. Supermarkets have rejected the idea, arguing that competition is a better mechanism to keep prices lower. Falling profits of UK retailers make taking losses on certain items to satisfy political pressure unappealing. Price caps won't change the impact of supply chain disruptions, higher labour costs and poor weather affecting harvests. But, global food commodity prices fell in April, and the expectation is that prices could finally start to ease with the new harvest starting later in the summer.

In the latest moves, Sainsbury's is investing £15 million to lower the prices of its own-branded groceries to reassure customers it will pass on savings when wholesale food prices decrease. Morrisons and Marks & Spencer are also planning to cut prices on key items. Sainsbury's, along with Tesco, recently reduced dairy product prices.

Sainsbury's

The share price of Sainsbury's rose 8% since the June 26 low following a complete flag pattern or as part of an incomplete pennant. Finding a top at 275p has offered correction, with prices near 270p suggesting a short-term continuation before further upside towards 290p. In the interim, 282p will need to give way to the bulls. Conversely, if bearish momentum increases to drive the price under 255p, we might see a deeper correction, opening up 245p.

Source: SpreadX / Sainsbury

Key Takeaways

The UK government has warned supermarkets about high prices amid calls for price caps, but the Competition and Markets Authority (CMA) has found no evidence of abusive price practices in the grocery sector. Major UK retailers face declining profits due to higher input costs and decreasing consumer demand for higher-margin items. However, there is hope as some retailers, like Sainsbury's, have reported declining prices for fresh products. The government seems to be leaning towards voluntary price caps, although supermarkets argue that competition is a better mechanism for lowering prices. Falling global food commodity prices and the upcoming harvest are expected to bring some relief in the near future. Sainsbury's, Morrisons, and Marks & Spencer are investing in price reductions on their own-branded groceries to reassure customers.