One of my favourite grocery quotes was made many years ago by a Waitrose marketing director who told a supplier conference “Good food does not cost less”. The expansion of Waitrose and the growth of discounters in the last decade demonstrates his comment to be right and wrong in equal measure. But at least he knew his market.
Consumers can be equally contradictory, with spend on food and clothing in decline over recent years (Source: ONS). Yet the polarising of price points in markets as diverse as cars, skincare and vodka show people are prepared to pay more for premium ranges.
According to press reports on what is now being called “Marmitegate”, Unilever asked Tesco for a straight 10% increase across a basket of major grocery brands. Hindsight is an amazing lens, but with a wide range of products sourced in different countries from multiple ingredients, this looks a naïve negotiating position. One which Tesco quickly pulled apart.
In Unilever’s defence, with the pound down some 18% against the dollar, 10% could well represent a significant rounding down of the real costs they are forced to absorb.
Regardless of the negotiation tactics employed it’s impossible to believe that Unilever wholly backed down with Tesco. There are already signs that other retailers have begun to increase retail prices of Unilever products, so let’s assume they settled on a high single digit % across the portfolio as a whole.
The consumer view, predictably, is very different. The Sunday Times quoted Ms. W from Burton, who claimed that “they are trying to punish us for trying to escape from Brussels”. Back in June commentators believed that many voting for Brexit didn’t truly understand the issues, and here we are 4 months later with a swathe of the public who can’t comprehend that exchange rate moves will actually affect real money. Under-pressure consumers like this are likely to see any price increase at all as unfair.
For sure, Tesco won the PR war out of Marmitegate, managing to position themselves as the consumer champion, but they will struggle to hold back the inevitable tide of subsequent supplier negotiations. Even now, good food does not cost less.
The reality is, whilst we’ve grown used to falling food prices in the last couple of years, this is a result of squeezed margins rather than true cost reductions. That’s the message Britain’s beleaguered farmers have wanted us to hear for years.
So what you consider a fair price increase depends very much on your perspective. Post-recession the grocery landscape has changed beyond recognition thanks to price comparison sites, internet shopping and the arrival of Aldi and Lidl. But “fair” remains somewhere between zero and 10%.
Plus ca change…