‘Government should forget food price caps and let shopkeepers shopkeep’

The notion of a price cap on basic food items such as bread and milk, as was floated at the weekend, showed once again how divorced policymakers seem from the reality of retail life. 

It’s easy to understand why food prices face scrutiny. Food price inflation continues to run rampant – it stood at 15.4%, the second highest rate on record, according to the latest BRC and Nielsen data released this week. However, price caps would not solve the root problems across the supply chain.

This half-baked solution begs more questions than it answers. From what has been said, it seems as if retailers specifically would bear the financial brunt. The only prices they control are their own, so are they to limit the cost of their bread or beans while suppliers of branded equivalents happily maintain margins on their lines? Once again the retail industry, as a result of its daily engagement with millions of shoppers – aka the voters politicians hope to woo by being seen to act on the cost of living – becomes a convenient lightning rod.

“This half-baked solution begs more questions than it answers”

Equally, what about the implications for farmers who supply basics such as eggs and milk? Concerns have frequently been raised about whether they get paid enough. Either they face additional pressure on their own margins as grocers cap prices and expect suppliers to do their bit, or supermarkets, on already low margins, shoulder the entire burden.

And where would a price cap initiative end? if introduced there’s no logical reason to restrict them to food, there are plenty of other essential items that the less well off sadly struggle to afford.

Should products such as toiletries, cleaning materials and baby goods like nappies – all in high demand at the food banks that have grown as the cost of living has borne down on consumers – also come within the remit of a price-capping scheme? For that matter what about bedding and cookers?

Looking to France

The government’s possible price cap scheme would be voluntary – perhaps recognition that it’s not an idea that will progress very far – but the experience in France, where there is a similar approach, shows the limitations.

Michel-Edouard Leclerc, chief executive of grocery giant E.Leclerc, who declined to attend a meeting with the French government when price caps were agreed in March, told CNews at the time that the deal might “give the impression that retailers will make up for this by charging more for their other products”.

That was an astute observation and such an impression would be ironic indeed in the UK, where the big supermarket groups have done all they can to keep prices down – prices driven up in the first place by factors beyond their control such as energy – and ensure the availability of value product to protect the less well off. They have done so at the cost of profitability.

Asda chair and former Marks & Spencer chief executive Lord Rose made his feelings clear this week. He said that price caps would be a “relatively clumsy” mechanism that could bring “unintended consequences”.

He maintained: “We are a very efficient industry, not just in Asda, across the retail piece. We have kept the price of electronics and clothing and food in real terms down to levels that are unprecedented in terms of our ability to be efficient … Let shopkeepers do what they do well – shopkeep.”

Few food retailers would disagree but, despite eroded earnings and all the value-for-money advertising, they do have a problem with prices. Many customers don’t read the financial pages bearing news of profit falls. What they see are frequently higher prices on the shelf edge, leading to those suspicions of ‘profiteering’.

Grocers face a collective challenge in addressing that perception. They may be able to communicate value to their own customers, but there is a job of work to be done getting the wider industry message across in the corridors of power, as the very idea of price caps shows. In space, no one can hear you scream – in fact, it seems they can’t even hear the howls of retail frustration in Westminster.