Inflation hits UK grocery prices after supermarkets slash promotional offers

Inflation hits UK grocery prices after supermarkets slash promotional offers

Inflation has started to creep into food prices in the UK, but base prices - those for products not sold on promotion - have not gone up, IRI data shows.

The figures, published in IRI Big Question: The grocery price war and outlook for 2017, found that average prices have risen by 1% since January 2016.

But this was entirely accounted for by a decline in sales promotions, the use of which fell 12% in 2016. Base prices, in contrast, are down 1.5% from their January 2016 levels.

It follows last week's report by Nielsen showing supermarket promotions are at their lowest level for 11 years as a proportion of consumer spend. 

By keeping base prices low but reducing promotional activity, the "big four" supermarkets – Tesco, Sainsbury’s, Asda and Morrisons – are moving their pricing strategies close to the discounters, Aldi and Lidl, which have eaten into their market share with an "everyday low prices" strategy that rarely makes use of promotions.

Martin Wood, head of strategic insight, retail at IRI UK, who co-authored the report, said: "The grocery industry has not only reduced the number of deals that they run throughout the year but also cut back the deepest levels of discount that used to be given. There were over half a million fewer multi-buy opportunities for shoppers in 2016 compared with 2015, reducing particularly during the last six months of the year.

"Despite the small rise in the average price of food and drink, shoppers have continued to be the winners, saving £9.3bn over the last three years from price cuts, which is equivalent to £2.90 per household for every week over the last three years."

Among own labels products, the trends are similar but more muted. Base prices are still lower than they were at the start of last year, but only by 0.6% – and as of November, they are rising again, unlike branded prices. Wood said this reflected the fact that retailers were themselves facing rising costs.

In terms of the actual prices paid by consumers, own label inflation is just 0.2%, thanks to the smaller impact of promotions in own-label.

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