TThe deepening cost of living crisis has drawn attention to the cost of weekly shopping. Households already struggling with soaring utility bills, gas prices, taxes, mortgage payments and rent can also expect to pay more for groceries this year.
Over the weekend, the chairman of Britain’s largest supermarket chain, Tesco, warned “the worst is yet to come” on food price inflation and forecast it would soon hit 5%.
Supermarkets are managing their own inflationary pressures and face rising bills for staples, from coffee beans to milk and wheat, as well as rising packaging, transportation, energy and labor costs.
But if they don’t do everything they can to contain price increases in Britain’s highly competitive grocery sector, they risk losing customers to competitors including fast-growing discounters Aldi and Lidl.
So what kind of ammunition do supermarkets have to fight this price war, and what are they doing to limit the increase in popular items while protecting profits?
reduce personnel costs
Labor costs are the focus. Brexit and the pandemic have disrupted the UK labor market, forcing retailers to offer wage incentives to fill vacancies. The statutory minimum wage for people aged 23 and over also rose by 6.6% to £9.50 in April.
Tesco last week announced it was cutting more than 1,600 jobs, cutting night shifts and closing more deli and meat counters to focus staff on other, more profitable jobs at the workshop. Sainsbury’s and Asda have also reduced fresh food counters.
Management positions that offer higher wages, such as night shifts, will also be eliminated, as will employee benefits such as paid breaks and bonuses for Sundays and public holidays.
Other tactics to reduce labor costs include greater automation, extending self-checkout to shoppers with large shopping carts in some stores, and incentivizing shoppers to switch to self-scanning systems such as Sainsbury’s SmartShop or Tesco’s Scan as you Shop. Asda is testing automatic facial recognition at self-checkouts to assess shoppers’ ages when purchasing restricted products like alcohol.
Behind the scenes, retailers are also looking for more automation in warehouses and stockrooms. Tesco is planning at least 25 robotic online grocery packing stations at the back of stores, while Ocado is developing a robotic system that will reduce the need for humans to pack bags or stack grocery crates for delivery trucks.
Regular fighting between supermarkets and their suppliers has increased this year as manufacturers and farmers try to pass on rising costs.
Food code umpire Mark White, who oversees relationships between major supermarkets and their suppliers, has warned retailers against requiring manufacturers to give them firm notifications of price changes or other unfair practices.
In a tough market, Ged Futter of consultancy The Retail Mind, which advises many suppliers, said numerous food manufacturers have temporarily halted deliveries to almost all supermarkets as battles over price hikes have escalated. Until recently he had seen only isolated instances of such a practice.
“They’ve gotten to a point where they’ve had to stop the trucks because they can’t afford to produce at those prices because the cost increases are so high. One of my customers’ packaging costs went up by 60%,” said Futter.
“I’ve been training suppliers for seven years and I’ve worked in food retail for 22 years and there has never been a time like it. The level of inflation is over 10%, which is unprecedented.”
shrinkage and mitigation
Be aware that supermarkets are downsizing your ready meals, mushroom packets or apple packets as they try to offset cost increases by offering slightly less for the same price.
Their suppliers are also using downsizing tactics. Walkers has cut two bags of crisps from its 24-bag multipacks, while the price remained at £3.50. KP Peanuts are now 225g instead of 250g for £2.50.
Bryan Roberts, a retail analyst at consultancy Shopfloor Insights, says private label items are likely a prime candidate for change because they don’t easily compare to the previous week or to competing stores. “You have to be a very diligent shopper or journalist to oversee different lasagnes,” he said.
Eliminating more expensive ingredients – like butter – from ready meals and reducing package size are also cost-cutting options.
Other tactics include reducing the frequency of deliveries to stores and changing the way or location of food production or ingredient sourcing to cut costs.
Cut out the extras
Retailers focus their resources on keeping prices down on essential items and abandoning less profitable or popular product lines.
Tesco removed CDs and DVDs from stores last week, following a similar move by Sainsbury’s, while Waitrose will stop giving free newspapers to its loyalty cardholders and instead offer discounts on their favorite items.
When labor costs are high, retailers look for ways to reduce the time it takes to work in-store so they don’t need as many workers. Look out for shelf-ready packs and gravity racks, where goods are fed in at the back and moved forward on inclined rollers when they are removed.
Switching to electric vehicles, cargo bikes and trains – as Tesco has already done – is also likely to become more common as retailers seek to reduce reliance on fossil fuels and truck drivers while meeting carbon reduction targets.
As pressure on household budgets mounts, retailers anecdotally say they’ve seen a rise in shoplifting, referred to in the industry as “shrinkage.”
Experts have already uncovered new measures to counteract stock losses, including stashing sensitive products – even candy bars – in sealed plastic boxes and only displaying cardboard blanks or empty boxes of goods to thieves, leaving the original to be collected by.