Business

Supermarket prices 'to rise by 5%'

  • 23 November 2016
  • From the section Business
Justin King Image copyright Getty Images
Image caption Justin King ran Sainsbury's for a decade

Prices in the UK's supermarkets will rise by at least 5% over the next six months, according to the former boss of Sainsbury's.

Justin King thinks that, after years of the cost of the weekly shop barely moving, we should expect to see inflation return.

Mr King told Newsnight that the fall in the value of the pound would cause "a profound change" for supermarkets.

He ran Sainsbury's for a decade until stepping down in 2014.

In that time, the company's revenue grew almost constantly, but prices rose much more slowly. In recent years, food prices have even had spells of deflation.

Mr King, now vice-chairman of the investment firm Terra Firma, says some supermarkets will be "squeezed in the jaws" of resisting price rises while also dealing with increased costs, and says some companies may not survive the squeeze.

Image copyright EPA
Image caption Marmite was one of the products involved in a pricing row between Tesco and Unilever

The value of sterling has fallen notably since the decision to leave the European Union. That's meant that ingredients and packaging imported from abroad have become more expensive, sparking some high-profile pricing rows over products such as Marmite.

Mr King, who backed the Remain campaign in the referendum, says that "all things being equal", a return to inflation is inevitable.

"Around 40% to 50% of what we buy is sourced abroad in a currency other than the pound, so with the current rates of exchange we could expect those things to be about 10% more expensive. And if that's about half of what we buy, then that means something of the order of 5% inflation."

His claim has been backed up by the trade body that represents many suppliers. Ian Wright, director-general of the Food and Drink Federation, told Newsnight that he expected prices to rise next year by "somewhere between 5 and 8%".

He believes we may not see the full impact of the weak pound for another year, but said it would make the UK grocery market even more competitive than it already is.

"Businesses that are already stretched, perhaps with lower margins and less strong relationships with customers - they are the ones that are going to suffer because they will be squeezed in the jaws of not being able to pull up prices, while costs continue to increase," Mr Wright said.

Asked whether that could mean a familiar High Street name disappearing, Mr King replied: "For sure it will happen - but I just can't tell you which one it will be."

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