how retailers are tackling the big price problem

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UK households are battling the cost of living crisis as prices of essential items continue to rise.

The UK is in the throes of a severe cost of living crisis caused by record inflation. It comes as households face rising bills and tax hikes, prompted by high fuel costs, supply chain issues and the war in Russia.

The Consumer Price Index revealed on Wednesday that inflation in the UK jumped to 9% in the 12 months to April, from 7% in March – the highest level in 40 years.

Many retailers have pledged to freeze their prices to reassure shoppers. However, some companies have been forced to raise prices in response.

With the cost of living crisis putting increasing pressure on consumer spending, rising prices come with substantial risks.

Duncan Brewer, a partner at strategy consulting organization EY-Parthenon, warns that retailers need to understand how their customers will be affected by inflation.

“Every consumer is different; those at the bottom of the income scale will be in more of a rush than those at the top,” he says.

“Without knowing how their customers will be affected, a retailer will be unable to understand how much of the increased cost they can pass on to their customers without pushing them into the arms of a competitor.”

Brewer tells the Retail Gazette that retailers can figure out how to mitigate costs by reformulating their own brand products to find cheaper, simpler alternatives. Without this focus on cost, retailers could pass too many costs on to their customers.

Weird Fish was one of the first retailers to freeze prices this year.

strange fish

The retailer’s chief customer officer, Ben Mercier, says the company has frozen prices to protect and grow its market share.

He says one of the company’s main strengths over the past year has been the continuous launch of new products.

“The new products give us more flexibility in terms of price because there are no comparisons and we can match the market,” he explains.

“The advantages of our strategy are that it allows us to gain market share and build our customer database. The downsides are that we have to constantly monitor customer sentiment and be ready to act – if demand is lower than expected, we won’t get the results we hope for.

In the world of health and beauty, Superdrug revealed a price freeze pledge last month, meaning it has pledged to freeze prices for personal care, beauty and healthcare. for at least a year to give buyers peace of mind.

Superdrug commercial director Simon Comins told Retail Gazette the retailer was facing pressure to raise prices.

He warns that price gouging, especially for branded products, is beyond Superdrug’s control.

“We know a lot of our customers are value-focused,” Comins says.

“Our own brand offering has always been an important focus for us and more than ever we are seeing people choosing to buy quality own brand items over branded products in an effort to save money. money.

“We spoke to some of our customers recently and 80% said they were starting to change their buying habits to combat rising prices. 92% of shoppers surveyed said they would consider switching to own-brand products given the current climate.”

Superdrug

While Superdrug’s price freeze commitment is reassuring to shoppers, it is arguably a temporary relief as price hikes remain a possibility for retailers.

An example of a retailer reversing its decision to lock in prices is value fashion firm Primark.

Primark insisted in January that it would not raise prices for Spring/Summer. However, just three months later, it backtracked by raising prices after saying it was unable to offset rising costs.

Despite the price increases, Primark expects its full-year margin to be hit. Its margin was 11.7% in the first half but the group expects it to be around 10% for the full year.

A Primark spokesperson told Retail Gazette that the retailer is “not giving up” on offering the “highest value for money” essentials on the high street, but due to mounting inflationary pressure it is had no choice but to implement selective price increases throughout its fall/winter reserve.


How do price hikes affect groceries?

Grocery store

Rising food prices have meant shoppers have been pushed away from more upmarket deals to more discount supermarkets.

Marks & Spencer chairman Archie Norman warned on Tuesday that food prices could rise by up to 10% this year. The warning comes as Kantar finds grocery prices have seen the biggest increase since December 2011.

Kantar said supermarket prices were 5.9% higher in April than a year ago, and the average food bill could rise by £271 this year due to inflation.

The research firm said shoppers were turning to discount retailers Aldi and Lidl as pressures on budgets grew.

Aldi was the fastest growing retailer during the data period, with sales rising 4.2% in the 12 weeks to April 17. It is closely followed by Lidl, which is up 4%.

“Supermarkets make different pricing decisions compared to promotions; some continue to emphasize their promotional offers, while others promote lower prices in their ranges,” says Duncan Brewer, partner at strategy consulting organization EY-Parthenon.

“Interestingly, all major supermarkets are better prepared for this period of inflation than they were during the financial crisis of 2008, when many believed that large ranges would continue to attract customers. “

“Big grocers are better prepared for this inflationary period”

Tesco, which removed its own brand products from its Aldi Price Match campaign to raise prices, said it added 100 more products to its low price range over the past week.

A Tesco spokesperson told Retail Gazette it is committed to delivering ‘great value’ to customers, whether that means promising everyday low prices on 1,600 basic products, matching prices around 650 basic products at Aldi prices or to offer exclusive offers and rewards via Clubcard prices.

Although fellow Big Four grocer Sainsbury’s has not confirmed he is raising prices, his former boss Justin King recently warned that households should be prepared for higher grocery bills and the grocer cannot not intended to protect buyers from rising food prices.

Morrisons, which is currently in the process of buying the collapsed convenience store chain McColl’s, cut prices on hundreds of products last month when chief executive David Potts said he wanted the price cuts to make a noticeable difference to consumers. buyers.

According to Kantar, Morrisons has been one of the supermarkets hardest hit by consumption cuts, with sales falling 11.5% over the past three years.

Meanwhile, Asda revealed last month that it had “lowered and locked” the price of more than 100 family favorites and would keep prices low until the end of the year.

Products covered by the “discontinued and locked” pledge include a range of household favorites, including fresh fruits and vegetables, fresh meats, cupboard favorites like rice and noodles, as well as soft drinks, desserts and frozen products. On average, prices will fall by 12%.

Retailers are fighting inflation in different ways, whether by shrinking, reducing assortment in key categories or revising their strategies.

Although a simple cost-plus model is simple to execute, it is likely to result in larger percentage increases for the most vulnerable, low-income customers.

Although downsizing of products is attractive in the short term, customers are likely to quickly realize that they are being harmed, which can have a significant impact on perception that can last long after the inflationary crisis.

The reality for most consumers is that value for money is still very important. It is therefore crucial for retailers to provide consistent messages on the quality/price trade-off offered by the retailer.

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