Have food prices peaked?

11 November 2008

Households should soon be able to feel some respite from the rising cost of living, in the supermarket at least, after authoritative data revealed that the cost of food has peaked.

The last 12 months have seen the cost of doing a weekly shop jump significantly with the cost of a supermarket shop up £1,404 a year according to mysupermarket.co.uk.

However, in the three months to November, grocery price inflation fell from 9.3% to 8.9%, according to data from information group TNS Worldpanel. It believes that prices have now peaked.

Sky-high food costs have led to an increased number of shoppers abandoning their usual food haunts and instead turning to budget supermarkets. A recent Moneywise poll found 31% of people have switched to cheaper food stores for at least some of their weekly shop.

According to TNS Worldpanel, players such as Aldi, Lidi and Netto has all seen their market share jump in recent months, with Aldi boasting 23.9% annual growth. In contrast, upmarket Waitrose has seen its growth rate fall backl

Among the four big supermarkets, TNS Worldpanel says the pace continues to be set by ASDA and Morrisons which are both out-performing the market with growth rates of 9.0% and 9.4% respectively.

Tesco's market share, however, has fallen very slightly over the past year while Sainsbury’s growth remains unchanged.

Ed Garner, director of research at TNS Worldpanel, says: "Put simply, retailers with a strong price positioning are continuing to benefit whereas the premium end of the market is clearly under increasing pressure."

And Joanne Denney–Finch, chief executive of food and grocery experts IGD, adds: “Retailers have been adjusting to a new economic reality by focusing on value. [Our research] shows consumers have been adapting by putting more effort into their grocery shopping – seeking out promotions, cooking from scratch and searching out the best deals.”

A nation of shoppers?

Despite the rising cost of food seen during the past year, food and drink were the only two sectors to report an increase in sales in 2008, according to the British Retail Consortium.

In contrast, total retail sales were down 2.2% in October compared to the same period last year, with clothing and footwear taking a particular hit.

Stephen Robertson, director general of the British Retail Consortium, says this figure is "seriously poor" considering the run-up to Christmas is usually the busiest time of the year.

"For the first time in three years total retail sales fell into negative territory – further evidence of how difficult trading conditions are for retailers," he explains. “The negative sales figures reflect record low consumer confidence. These are tough times for families and retailers, who are hoping the Bank of England’s bold interest rate cuts will provide a much-needed boost.”

However, Jeremy Rance, the national director of retail and wholesale sectors for Barclays commercial bank, says he expects sales to pick up again as Christmas approaches.

“As we approach Christmas we are witnessing a tightening of consumer belts which has undoubtedly seen an increase in window shopping prior to a likely seasonal splurge closer to the holiday season,” he adds.

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