Tesco and other supermarkets hit with price inflation
By Achilleas Salaveris
Inflation in the UK has risen to 11.1%, and the consequences of this have not gone unnoticed. Tesco, the UK’s largest supermarket chain, has seen a huge increase in price of even the most basic products across all UK stores – and reported pre-tax profits have risen from £636 million to £2.03 billion since last year.
The corporate giant, which dominates 26.9% of the share market – far exceeding all other UK supermarkets – has experienced a sales drop of 1.5% in the first quarter of 2022, as the behaviour of consumers has changed due to the cost of living crisis.
The rising cost of food is one of the biggest challenges faced by consumers right now, as the prices of everyday products have increased so much over the last two years – making the same shopping basket almost unaffordable for many people.
Many individuals have been observing the difference in prices on products they usually buy during their typical supermarket trip.
Price comparison of basic products from June 2021 to November 2022.
Consumers seek bargains in order to afford three square meals per day, or sometimes only two or less. They have to cut back on spending, and one way they achieve this is by switching from name brand products to store branded ones. This switch is mainly between staple items such as bread; beans and cereal.
Consumer behaviours have changed in other ways, as they now do more frequent trips to the supermarket and buy less as a way to cope with prices soaring due to inflation.
Percentage increase across products, and the basket total price.
Of the effect of inflation on the company, Tesco Chief Executive Ken Murphy said, “We are seeing a higher frequency shopping trips so there’s an elevation in the number of shopping trips, we are seeing basket sizes coming down a little bit”.
He also added that “Those staples like pasta, bread and beans is where we’re seeing consumers chose to trade down to the entry level or the core own brand level product”.
Image Credit: Achilleas Salaveris
“We are seeing some early indications of changing behavior as a result of the inflationary environment.”
Many consumers turn to competitive supermarkets to do their shopping in search for a better deal. The second most popular supermarket is Sainsbury’s so the comparison of the same shopping bag among the two supermarkets is something many consumers will be considering.
Comparison of Tesco and Sainsbury’s prices last month.
The inflation in the UK has impacted the wages of people and therefore their ability to buy products. With the increase of the prices the buying capability of people has decreased, and this connection is depicted in the diagram below. It shows the percentage increase of the CPIH, the regular pay affected by the inflation and also the change of the basket.
The CPIH (Consumer Prices Index), is a measurement of the inflations, that indicates how more expensive owning and maintaining a household is.
Source: Office for National Statistics, latest data available.
The same bag in June 2021 would be £10.20 as opposed to the same bag in November 2022 which would be £13.35.