Supermarket wars hit food prices

By Dan Colombini

- Last updated on GMT

M&S is pinning its hopes on tasty festive sales in order to ensure a profitable New Year
M&S is pinning its hopes on tasty festive sales in order to ensure a profitable New Year
The first evidence emerged this week of how supermarket price wars were helping to force food prices down. Food prices were 0.5% lower in the first two weeks of this month compared with the previous month, according to the British Retail Consortium (BRC).

The shift takes annual food price inflation from 5.0% to 4.2% driven by the fresh food sector. BRC attributed the fall partly to the supermarket price war, which began with Tesco’s ‘Big Price Drop’ campaign, and partly to the easing of soft commodity prices.

City analysts described the impact on food prices as “real​” and “noticeable​”. Darren Shirley, an analyst at Shore Capital, said: “While we balk somewhat at the overstatement that the industry pricing activity has had a ‘dramatic’ effect on food pricing, it is none the less real and noticeable.”

Food inflation

“Whilst ​[food prices are] lower and falling, something that embattled consumers will no doubt welcome, let us be clear that food inflation is still very much 'in the system', these remain fulsome rates of price growth year-on-year.​”

Meanwhile, as the all-important festive season approaches, many retailers are growing increasingly nervous about whether a busy Christmas will help to ensure a profitable New Year.

Retail sales values were 0.6% lower on a like-for-like basis in October 2011 compared with the same month of last year, according to a report from the British Retail consortium and accounting firm KPMG. But total sales were up 1.5%, compared with a 2.4% increase in October 2010.

Stephen Robertson, director general, British Retail Consortium, said: "Which part of the wave we're riding varies from month to month - but the water is consistently chilly. For a fifth month, total sales growth continues its strangely regular flip-flopping between 2.5 and 1.5 per cent.

But, the year-to-date figure, which smoothes out these minor moves, is unchanged from the previous month. This is evidence of the basic weakness of consumer confidence and demand and it is worrying, this close to Christmas​.”

Marks & Spencer (M&S) is the latest retailer to stress the significance of the “all important​” Christmas period after the firm announced a 3.9% rise in food sales for the period ending October 1.

Despite the increase the firm said it remained “cautious​” as the festive season loomed.

The retail giant attributed its rise in food sales to the introduction of 900 new lines unique to its stores, which the firm said, had contributed “significantly​” to the increase.

The firm also saw like-for-like sales up 2.1%.in its food division, thanks to increased promotional activity. M&S also maintained its 3.6% market share despite lower space growth and lower price inflation relative to the market.

900 new lines

A spokeswoman for the firm said: “We continued our focus on innovation, giving our customers even greater choice by launching 900 new lines, in line with our target to refresh 25% of range each year.

We re-launched entire ranges including deli which delivered a great performance. We have also worked on raising customers’ awareness of innovation through advertising, promotions and in-store cafés.​”

Overall group sales were up 2.4% which the firm said was driven by the strong performance from its Food and international businesses.

Despite this, the firm announced an 8.1% drop in pre-tax profits to £320.5M compared with £348.6 the previous year.

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