Cost-cautious Britons are spending more on home-cooked meals, risking to bring inflation back to grocery stores, a recent report has stated.
According to research by Retail Economics and NatWest, UK consumers expect to be spending more money on in the next three months on groceries while less on eating and drinking out.
It reflects a social phenomenon stemming back to the pandemic when people got into the habit of attempting restaurant-quality meals at home. Supermarkets subsequently put more effort into their premium ranges and have profited from a boom in demand.
Richard Lim, chief executive officer at Retail Economics, also said that Britain’s grocers should be able to reap the rewards of strong demand for high quality, niche and premium ranges, while keeping a lid on the price of more basic products.
“Grocers really need to focus on being competitive across those core essentials and then they will try to protect margins in other parts of the basket,” Lim said. “There might be deflation in some areas, inflation in other areas.”
Last week, supermarket Asda , slashed prices on 1,500 products in an effort to win back droves of customers who have switched to its rivals.
However, Bloomberg analysts state that price wars are "not necessarily incompatible with rising inflation", when broader economic conditions lift cost pressures.
Charles Allen, a senior retail analyst at Bloomberg Intelligence, said one of the fiercest price wars in the UK came during the high inflation of the late 1970s.
With the upcoming sharp increase in employment taxes and another steep hike in the minimum wage, retailers are expected to pass on some costs to customers, hence increase prices.
Supermarkets Sainsbury’s and Tesco together employ nearly half a million workers, and collectively the two supermarkets are facing an extra £390 million bill due to the budget measures, states the Bloomberg report.
“They’ve had many rounds of trying to operate as efficiently as possible in order to minimise prices for the consumer,” Jessica Moulton, senior partner at McKinsey, said. “The grocers are at their limits.”
Food inflation accelerated to 3.3 per cent in the year to January, and market surveys suggest it stayed high in recent weeks.
