Recessions' impact on supermarket products

[SeriousSam]

It doesn’t matter what percentage the total gain is, or whether you or I think that 8% constitutes ‘big bucks’, but rather to protect those gains the UK supermarkets have exaggerated the impact that commodity prices were having on their profit margins so they could continue to pay that money to shareholders, and then passed it on to the consumer to pay. Processed foods, the majority of sales in all the major Supermarkets, should see little increase in prices when commodities rise, given how little that makes up of the total products cost. It is simply wrong to say or imply, that commodity costs is the main driver of most of the price hikes. Rather it was used as an excuse to inflate prices to protect shareholders, and that, IMO, is corporate greed, and that greed has led to more people to shun the usual supermarkets, and turn to the likes of Lidl and Aldi, who are somehow able to sell, whilst presumably under the same pressures of the commodity markets, at less. I guess there is a lesson in there somewhere.

Actually it is wrong to say that Supermarkets "used" commodity price increases to justify inflating the cost of products to protect shareholders. Moreover your reasoning about these increases having limited impact on final product cost is entirely specious. Consumers have only been exposed to a proportion of the actual increases that have taken place, with most being absorbed by the manufacturing base. Don't misunderstand me however, I'm not saying this to defend the supermarkets as personally I have serious issues with some of their operating practices. What I am saying is this;

1. Food is cheap in comparison to what it could or arguably should cost
2. Commodities and raw materials comprise a much bigger proportion of product cost than most people are aware
3. Supermarkets have for the most part avoided increasing food prices to avoid a loss of sales and thus revenue

Now as for the likes of Aldi, Lidl and Iceland seeing increased custom that is primarily down to three things;

1. People are no longer stigmatised for shopping there
2. Price
3. Minimal quality difference compared to the major retailers

The first is a consequence of falling living standards brought on by the economic downturn and is entirely understandable. However, the other two reasons are where it gets interesting. Aldi etc. have a much lower cost base than the primary retailers due to the way they operate. Thus they can sell products at a lower price and still retain a profit margin. Part of this is actually the fault of the retailers due to how they package their products both on shelf and during transit. However, where they really messed up is with quality. The reduction in quality differential has been tacitly approved in order to ensure continuing supply in the face of commodity price increases. What this has done however is create a situation where the consumer can no longer appreciably tell the difference between them, or in fact that the quality is worse. So based on price they ask themselves "why should I pay more for something that is only as good".

Ultimately the food industry needs a massive overhaul in order to deal with the challenges it will face in the coming decades. However, the most significant barrier to that is not big business it is actually the consumer. Who in real terms knows next to nothing about what they are shoveling into their mouths every day...

[wasabi]

Ultimately the food industry needs a massive overhaul in order to deal with the challenges it will face in the coming decades. However, the most significant barrier to that is not big business it is actually the consumer. Who in real terms knows next to nothing about what they are shoveling into their mouths every day...

This worries me. I've been living paleo for over 3 months and see huge benefits from not shovelling cheap-to-produce starch based foods down my throat. With 7 billion people and rising thanks to selfish breeders, soon the only food options will be efficient-but-unhealthy grains / GM gloop and processed meat.

[opel80uk]

Actually it is wrong to say that Supermarkets "used" commodity price increases to justify inflating the cost of products to protect shareholders. Moreover your reasoning about these increases having limited impact on final product cost is entirely specious. Consumers have only been exposed to a proportion of the actual increases that have taken place, with most being absorbed by the manufacturing base. Don't misunderstand me however, I'm not saying this to defend the supermarkets as personally I have serious issues with some of their operating practices. What I am saying is this;

1. Food is cheap in comparison to what it could or arguably should cost
2. Commodities and raw materials comprise a much bigger proportion of product cost than most people are aware
3. Supermarkets have for the most part avoided increasing food prices to avoid a loss of sales and thus revenue

It’s not wrong. In 2011 UBS published a report that UK Supermarkets (the report specifically singled out the UK market) were increasing prices well above what would be necessary in relation to commodity prices, and in some cases over 100% what other, similar sized markets in other OECD countries were doing. They felt the increases were so unjustifiable that they recommended the UK markets face a competition enquiry for, “rising in excess of justifiable cost increases.

So in relation to your specific points:
1. It really depends on what food you’re talking about. Some foods will be sold at just over cost, and others with a significant mark-up. Very few foods will be sold at a loss. Take beef for example – there is a huge mark up from the price given to a farmer for the animal, to what it is sold for in the shops. In terms of the actual cost, Beef is very expensive.
2. Commodity costs do not comprise even 40% of the total cost of processed foods, which in turn make up the majority of supermarkets sales.
3. Clearly, given the actual increases reported, and compared to virtually every other, similar, country, they have not avoided increasing the cost.

[SeriousSam]

If as from what I have read of the report suggests they are looking at what in real terms is a snapshot of the food market then to be blunt it's not worth the paper it's written on. We have had had 15 odd years of commodity price increases with some of them being huge swings e.g. wheat, milk and cocoa. During that time prices in the UK have remained behind the curve, so in real terms you are seeing a adjustment to catch up rather than any untoward manipulation.

Yes there have been some fun and games with raw milk, more so than the others, but that has to be taken in the larger context of milk products. These have been heavily influenced by a massive increase in consumption by the far east which distorted prices for whey protein, cheese and the like. Back in the mid 2000s the price of cheese rocketed by >200% in the space of days, yet the price of the humble cheese sandwich remained relatively stable... why, because the retailers didn't want to increase prices.

As to beef being cheap that isn't the case as it is still behind where it should be based on actual costs, with sadly the farmers bearing the brunt of this disparity. The same can be said for other proteins, with fish being another one which has taken a massive hit due to availability. Hence, you buy packs of tuna in tins of 3 rather than 5. Furthermore commodities impact on between 50-100% of raw material costs in processed foods, both directly and indirectly. Some of these having nothing to do with food e.g. US bio-fuel policy has had a massive impact on the world wheat prices, especially in light of recent poor harvests.

The final point I'd like to make is that comparing processed food costs between European countries is also rather pointless as both the markets and products are radically different. So you are not comparing like with like.

[Top_gun]

Thanks SeriousSam. You've reminded me about how the banks have influenced food prices by speculating on food commodities.

[opel80uk]

If as from what I have read of the report suggests they are looking at what in real terms is a snapshot of the food market then to be blunt it's not worth the paper it's written on. We have had had 15 odd years of commodity price increases with some of them being huge swings e.g. wheat, milk and cocoa. During that time prices in the UK have remained behind the curve, so in real terms you are seeing a adjustment to catch up rather than any untoward manipulation.

Yes there have been some fun and games with raw milk, more so than the others, but that has to be taken in the larger context of milk products. These have been heavily influenced by a massive increase in consumption by the far east which distorted prices for whey protein, cheese and the like. Back in the mid 2000s the price of cheese rocketed by >200% in the space of days, yet the price of the humble cheese sandwich remained relatively stable... why, because the retailers didn't want to increase prices.

As to beef being cheap that isn't the case as it is still behind where it should be based on actual costs, with sadly the farmers bearing the brunt of this disparity. The same can be said for other proteins, with fish being another one which has taken a massive hit due to availability. Hence, you buy packs of tuna in tins of 3 rather than 5. Furthermore commodities impact on between 50-100% of raw material costs in processed foods, both directly and indirectly. Some of these having nothing to do with food e.g. US bio-fuel policy has had a massive impact on the world wheat prices, especially in light of recent poor harvests.

The final point I'd like to make is that comparing processed food costs between European countries is also rather pointless as both the markets and products are radically different. So you are not comparing like with like.

The UK has had one of the highest costs within the EU for groceries, including products like milk, bread, etc for years, so it’s simply not true that the UK has been behind the curve. Otherwise, what you’re saying is, although we are one of the most expensive, with commodity costs going up globally, the increase, which is higher than virtually any other OECD country, is simply catching up. With what, or with whom? And if somehow what you are saying is correct and it is simply catching up with commodity costs, how is every other country is able to raise costs proportionally & still be cheaper, and we are not? How is it that the rest of Europe, despite the ‘markets and products being radically different’, are comparable, but we are not?

[wasabi]

If you have a look at the groceries index here you can see a small upwards trend (3 points, from 94 to 97) in the past 4 years.

[Top_gun]

If you have a look at the groceries index here you can see a sall upwards trend (3 points, from 94 to 97) in the past 4 years.

Personally I'd take those figures with a pinch of salt. Those indices are all relative to New York City.

[peterb]

Personally I'd take those figures with a pinch of salt.

Pinches of salt may be purchased at your local supermarket or grocers. )

[opel80uk]

Pinches of salt may be purchased at your local supermarket or grocers. )

That has made me revaluate my opinion on the death penalty……….

[Top_gun]

Yet the actual data shows we've had the sharpest fall in food and drink prices for a decade..

http://www.bbc.co.uk/news/business-28224082

Yeap a massive 1.8% drop over a 1 year period. So a packet of corn flakes which doubled in price during the last few years is suddenly cheaper? I take it you don't do much food shopping.

[Saracen]

That has made me revaluate my opinion on the death penalty……….

ROFL.


I knew you'd come round. It just took the right arguments.

[Saracen]

Yeap a massive 1.8% drop over a 1 year period. So a packet of corn flakes which doubled in price during the last few years is suddenly cheaper? I take it you don't do much food shopping.

Food shopping is about more than cornflakes, though. A few (3 or 4) months ago, I was getting my regular large box of Shredded Wheat at £3.20. Now, it's £2.39.

However, as with all statistics, caution needs to be exercised. On that "sharpest fall in a decade" claim, that may well be true. BUT .... it follows an exceptionally sharp peak in prices of grain, rice, etc. So, the exceptionally sharp fall in prices may well merely demonstrate getting somewhere close to back to normal, after an exceptionally sharp rise.

If my monthly shop went from £500 to £1000, last June, due to a temporary price hike, then compared to last June, a drop to £600 gives me an exceptionally sharp decline, of 40% over the year. However, I'm still paying £100, or 20%, more than I was before the hike. That may well be the sharpest drop ever, but it's because of a very sharp rise, correcting.

So, yes, prices have dropped 40% .... but are still 20% higher than a couple of months before that. Individual statistics can be used, and selected, to prove pretty much whatever the person doing the selecting wants to prove.

If I'm a retail organisation, I can prove prices have gone down by 40%, and if I'm a consumer organisation, I can prove they've gone up by 20%, and BOTH are telling the truth, over the same price data. Neither, of course, represents a complete picture.

[OilSheikh]

A can of coke is now officially 65p !
Remember when it was 49p ?

[kalniel]

A can of coke is now officially 65p !
Remember when it was 49p ?

http://forums.hexus.net/general-disc...ml#post3315881

[wasabi]

A can of coke is now officially 65p !
Remember when it was 49p ?

You can buy a 2l bottle of own-brand coke (or an array of other drinks) for less than that.