No profiteering going on say top UK supermarket execs

Top executives from UK supermarket chains dismissed claims of profiteering on Tuesday, asserting that they were not fully passing on price pressures to customers to prevent them from seeking alternatives. The sharp rise in food inflation has led to the most significant squeeze on living standards in Britain since the 1950s, prompting questions about responsibility for soaring grocery bills.

While France and Hungary have imposed price caps on essential items due to similar pressures across Europe, representatives from market leaders Tesco, Sainsbury’s, Asda, and Morrisons informed Parliament that such measures were unnecessary in the UK.

During testimony before the business and trade committee in the House of Commons, Rhian Bartlett, Sainsbury’s food commercial director, highlighted the fiercely competitive nature of the UK food market. She stated, “We’re widely considered one of the most competitive food markets in the world. I’m not sure how price caps would contribute to this process, other than introducing bureaucracy.”

The surge in British food prices began over a year ago, exacerbated by pandemic-related supply chain tensions and the Russian invasion of Ukraine. Official data indicates that food and drink inflation stood at 18.3% in May.

Bartlett acknowledged that Sainsbury’s had refrained from passing on all the pricing pressures it faced. She explained, “We are inflating behind our input costs and inflating wherever possible behind the market.”

The retail executives said that, in addition to higher energy costs, they were grappling with rising wage bills, commodities, and logistics expenses. They also faced fierce competition from German discount chains Aldi and Lidl, which have driven down prices in the UK over the past decade.

The industry has cautioned about the time lag between a decrease in wholesale prices and corresponding reductions at the retail level. Nevertheless, some goods, including milk, bread, pasta, and oil, have begun to witness price decreases.

Responding to a lawmaker’s accusation of “a grotesque display of profiteering,” Gordon Gafa, Tesco’s commercial director, revealed that the company earned a profit of 4 pence for every pound spent. Rhian Bartlett from Sainsbury’s mentioned that their profit margin on the same measure was less than 3 pence, arguing that it did not indicate a high-profit margin.

Industry representatives highlighted that major consumer goods companies like Unilever and Nestle maintain profit margins of 16 to 17%, providing context to the supermarket executives’ statements.

Tesco, Britain’s largest retailer, has projected a broadly flat retail adjusted operating profit for the year.

Swati Dhingra, a policymaker at the Bank of England, supported the executives’ claims, stating that there was limited evidence thus far to suggest companies were failing to pass on lower prices. Dhingra referred to the most recent annual earnings reports to arrive at this conclusion and stated, “It’s not very convincing to argue that grocery inflation is driven by ‘greedflation.'”