The supermarkets have led an uncharacteristically brutal retail response to the recent Budget. While grocers have every right to feel aggrieved, Hugh Radojev writes, they’d do well to have a good hard think before passing costs onto their consumers
Be careful what you wish for, as the old adage goes.
In the run-up to the summer election, the noise coming out from many retailers about the prospect of a change in government from the Conservatives, the traditional party of big business, to Labour was surprisingly positive.
During the campaign, Labour had been making all the right moves: holding meetings with business leaders and promising to be the party to get the UK economy back to growth. Its charm offensive, combined with over a decade of Tory mismanagement and economic stagnation, was enough to win over both the electorate and some of the UK’s top retailers.
However, it’s fair to say that after the Budget, the honeymoon is over. Marks & Spencer boss Stuart Machin described Labour’s decision to increase national insurance contributions and reduce the payment thresholds as a “double whammy” blow adding an extra £60m in costs to the bottom line.
Retail has rolled with just about every punch that successive governments and the cruel whims of fate could throw at it over the last decade
Sainsbury’s boss Roberts said the Budget would add an extra £140m in costs and went a step further – explicitly warning that the changes, combined with a hike in the living wage and another year of government inaction to reform business rates, would all push up inflation.
“We’ll do everything we can to mitigate this,” Roberts said. “But given the margins of the industry – this is a 3% margin industry – there just isn’t the capacity to absorb this level of unexpected cost inflation coming at us as fast as it is.”
De facto Asda boss Lord Stuart Rose added his voice to the chorus on Friday, saying “business has been clobbered” by the Budget.
As an industry, retail has rolled with just about every punch that successive governments and the cruel whims of fate could throw at it over the last decade: from Brexit, to Covid, to the cost-of-living crisis and everything else in between.
Which makes this very public backlash more notable, and surprising.
The anger is understandable because grocers clearly feel they’ve not been listened to. Reading between the lines, it’s clear that Labour had promised the sector real reform of business rates this year, not next.
Grocery is a business built on razor-thin margins and the UK is the most competitive and cut-throat market of its kind
Without that tasty carrot to chew on the changes to national insurance came as an unexpected and unwelcome stick – and a big, splintery one at that.
It’s true that grocery is a business built on razor-thin margins and the UK is the most competitive and cut-throat market of its kind in the world.
The big profits that the likes of Sainsbury’s and M&S are making don’t just materialise out of thin air. They are the result of huge amounts of hard work and tough decisions made by people carrying the weight of national institutions on their backs.
But therein lies the rub. Sainsbury’s is on course to deliver over £1bn of profit at the end of the financial year. M&S meanwhile is by its own admission in “the best financial health it’s been in decades”, and delivered better than expected profits for the first half of more than £400m.
Most customers don’t pore over retailers’ financial updates or religiously read the business pages. But they do notice when their food shop starts costing more than it did last week.
You don’t have to look back too far to remember a time when inflation upended the established order
And, if social media is anything to go by, they also start noticing things like ballooning profits at their chosen supermarkets and the multi-million-pound salaries paid to its executives.
Grocery retailing is a business, and big business at that. It would be naive to suggest that grocers should just let their margins be completely eroded by the increase in costs. Having said all of that, customers won’t care why things are getting more expensive, they’ll only care when it does.
Governments start noticing increasing prices too. As Labour’s Democratic counterparts in the United States found recently to their detriment, rampant inflation is a government killer at the polls. Of course, Labour didn’t need to look across the Atlantic to know that – it’s the major reason they’re in power now, after all.
If UK grocers feel they’re being ignored by the government now, they’ll have its full attention if prices start spiking again from April when the changes to national insurance come into effect.
You don’t have to look back too far to remember a time when inflation upended the established order. Last June, with food inflation peaking around 17%, representatives from the big four grocers were dragged before the business select committee and accused of profiteering on food and fuel prices by MPs of every stripe.
No coincidence then that every major supermarket business delivered a loss for that summer quarter.
For three months, anyway, black was white, up was down, and losses on the balance sheet were a thing to be, if not exactly celebrated, at least highlighted as evidence that the big supermarkets felt the plight of consumers and were ploughing money into easing their pain.
Nobody wants to go back to that, but if supermarkets do pass on some of that inflation to the customer then the biggest losers – after shoppers – would be the grocers themselves.
2 Readers' comments