The CEO of Sainsbury’s, the UK’s second largest grocery chain, has stated that supermarkets have not been capitalizing on high inflation rates to generate higher profits. Simon Roberts emphasized that Sainsbury’s, in particular, has made less profit in order to maintain lower prices.
Critics have accused food retailers of engaging in “greedflation,” where they raise prices to increase their profits. In response, the competition watchdog has announced its intention to investigate the functioning of the grocery market.
With the Competition and Markets Authority focusing on high food prices, some politicians have also called for measures to address the issue. However, Mr. Roberts clarified in an interview with the BBC that Sainsbury’s and other supermarket chains have actively invested to combat inflation and mitigate the impact of rising costs on consumers.
“We made less profit year-on-year and that’s because we made really conscious decisions to keep our prices as low as we could,” Mr Roberts said.
Sainsbury’s recorded a pre-tax profit of £690 million in the fiscal year ending in March, which represents a decline from the previous year’s £730 million.
There is an increasing demand for transparency regarding the mechanisms behind setting food prices.
While general inflation has dropped to 8.7% and certain wholesale food prices and energy costs have started to decrease, food price inflation remains persistently high at 19%.
Ged Futter, a former senior buyer at Asda and currently a retail analyst, argued against claims that supermarkets were excessively profiting, highlighting the lower profitability observed across the sector.
“There is no evidence from a single supermarket that this is profiteering,” he said. “What they are doing is absorbing some of the higher costs.”
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According to Mr. Futter, the major supermarket chains experienced reduced profits or even losses in the past year. Tesco, the largest supermarket chain in the UK, generated pre-tax profits of £1 billion, which is half of their previous year’s earnings.
Mr. Futter mentioned that profit margins in the industry were below 5%, significantly lower than those in food manufacturing. He also noted a 30% increase in costs within the agricultural sector, suggesting that farmers and retailers were absorbing a portion of the price hikes.
Recent retail sales data from the Office for National Statistics (ONS) indicated a recovery in sales volumes in April following a decline in March due to adverse weather conditions. The ONS reported a 0.5% increase in sales volumes last month, with a 0.7% growth specifically observed in food stores.
However, the ONS figures demonstrate a divergence between sales volumes (quantity of goods sold) and the value of sales (amount spent) in recent years due to rising prices. While total retail sales in value terms are 16.5% higher compared to their pre-pandemic level in February 2020, sales volumes are 0.8% lower.
In recent days, several supermarkets have announced price reductions for staple items commonly found in shopping baskets, such as bread, milk, and butter.
“We invested over £560m in the last year, others have done similarly,” Mr Roberts said.
According to Mr. Roberts, the CEO of Sainsbury’s, pay increases of over 10% for the supermarket’s staff last year contributed to the rise in prices. He mentioned that these pay rises were already implemented and hoped that the cost of other inputs, such as energy and food commodities, would continue to decrease.
Tesco, Morrisons, Asda, Aldi, and Lidl have also raised wages for their employees in recent months.
Mr. Roberts clarified that the headline rate of food inflation, around 19%, does not mean households are spending 19% more on food. Many shoppers have chosen to purchase less, opt for less expensive options, or shop more frequently to minimize waste.
There has been an increasing trend among shoppers to favor own-label products, according to Mr. Roberts. In response, Sainsbury’s has relaunched its own-label value range under the new brand name Stamford Street, which offers 200 products including items like king prawns and cheese tortelloni pasta. The name is a nod to Sainsbury’s former head office location near Blackfriars in London, which has since been demolished.
Mr. Machin, the chief executive of Marks & Spencer, also defended the industry against accusations of “greedflation” and emphasized that the company had invested to protect customers from the impact of inflation on its profit margin.
The industry has highlighted structural reasons why prices may not decrease rapidly even when energy, wholesale, and commodity prices decline. Many retailers have long-term contracts that incorporate higher prices, as stated by the British Retail Consortium.
Alan Jope, the CEO of Unilever, dismissed allegations of greedflation and stated that the company was only passing on three-quarters of the increased costs it faced.