UK food prices are still increasing at an annual rate of nearly 20%, with the ever-escalating costs hitting poorer families hardest.
Yet the Government’s polite request (in the circumstances) to retailers and producers to rein them in has drawn a predictable, if rather sad, chorus of complaints from the industry. Asda chairman Stuart Rose (interviewed on the BBC below), usually one of the UK’s more balanced businessmen, has led the charge, saying there’s no way food prices will come down with increased costs still in the pipeline. Trade body the British Retail Consortium has waded in too.
But Asda’s Rose knows only too well that such raw material costs aren’t the only reason for rising prices. Asda is now owned by the Issa brothers, with private equity assistance, who are planning to merge their heavily borrowed petrol station empire with Asda (also heavily borrowed since the brothers bought it for £6.8bn.) Their petrol stations will cost the merged Asda entity another £2.3bn.
Such deals add exponentially to the costs of a business, especially in a period of rising interest rates. So Asda price hikes on groceries (and soon, no doubt, petrol) are not all down to Vladimir Putin and supply chain problems. Similarly Morrisons was bought by private equity two years ago, in a deal engineered by former Tesco boss Terry Leahy, for £6bn. Prices went up.
And who says that food prices shouldn’t be reined in? It was tried in the 1970s when it wasn’t a success but there was far less consolidation in the food market then. Companies, others include Tesco and Sainsbury’s, don’t have divine a right to make hundreds of millions in profit at the expense of their customers. A billion profit, which Tesco makes, gives you a lot of leeway.
So how do such “benefactors” promote themselves? Morrisons has just launched its first campaign through Leo Burnett, Sainsbury’s has moved to New Commercial Arts, Asda has fairly recently landed at Havas.
Price will play a part obviously (Tesco is betting the ranch on lower Clubcard prices, Sainsbury’s on Nectar) but all the off-screen noise is about high supermarket prices. There’s a danger you’ll seem out of touch or just plain deaf if you boast about prices.
You can bet that whenever one of these launches its next big campaign, there’ll be no mention of budget. Headlines like “supermarket X to spend £20m on telly ads when prices are going though the roof” is manna from heaven for the Mail and the Sun. Do they just keep keep quiet?
The first big UK supermarket to freeze staple product prices at a reasonable level (that is, lower than they mostly are now) stands to win a big reward even if shareholders (especially the private equity gang) will squeak with dismay.
Have any of these managements the cojones to grasp this particular nettle? Should their shiny new agencies be telling them this is the way to go? Agencies are supposed to advise on strategy after all, there are more than enough CSO’s around.
Creating shareholder value, the quasi-religious hymn sheet all these managements work from, should be a long term as well as a short term strategy.