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Food Prices to Rise After Deflation

birds eye view of a fruit and veg section in a supermarket

Weekly grocery shops in the UK could soon be sharply increasing in price, according to industry experts.

Prices have been falling for the last 2 years, but now figures are starting to indicate that this trend could come to an end.

Food Deflation History

The last 2 years have seen huge amounts of deflation in the food sector. Major supermarkets and discount rivals have been taking part in price wars, which have seen prices forced lower and lower. It has been hurting their profitability, however, and there was always going to be a point when it had to stop.

shopping trolleys stacked like at the shops

In the 12 weeks leading up to the 4th of December, however, prices fell by just 0.1%. That’s the lowest decrease in more than 2 years, indicating that this period of cheap buys for shoppers is coming to an end.

"We expect inflation to increase further next year when Brexit foreign exchange shocks start to feed into food prices," says Bruno Monteyne from Bernstein, who also adds that the slowing rate indicates that the inflation will now become positive again. In the last 4 weeks of the period indicated, prices actually rose.

Tesco managed to see bi gains during this period, with sales rising by 1.6% as shoppers flock to begin stocking up ahead of Christmas. They have managed to grow their market share from 28% to 28.3% - a large margin where these figures are concerned. This is their 3rd month in a row of increased market share.

Sales and marketing professionals have been working hard on festive campaigns, which began during this period – and it’s possible that this trend will continue until January as a result.

Back to Premium

There is a growing trend of customers returning to premium lines, some of them perhaps for the first time since the economic crisis of 2008. The Tesco Finest range has been helping to increase the average basket price, and it’s clear that this is not just limited to their stores.

The overall percentage of own-label purchases on premium lines has shot up to 6.3%. This is compared to 5.7% at the same time last year.

Morrisons have reported a similar finding: they have seen their premium line sales jump by an astonishing 35%. They have added an extra 100 items to their “Best” lines for Christmas, as this is a time of year when traditionally shoppers are more likely to treat themselves to more expensive items. Particularly for the Christmas dinner itself, there is normally a spike in premium sales.

Asda’s Extra Special premium line has grown by 15%, but overall the supermarket is the worst performing in the UK. Sales have slumped by 4.7% year on year, with their market share decreasing from 16.2% to 15.3%.

"Asda continues to lose sales and appears to be hurt by the recovery at Tesco and improved underlying performances by Morrisons," said David McCarthy at HSBC. "It is now too late for any major price repositioning to be effective this year. We may see something in the new year."

Budget Brands Winning

The big winners in this year’s Christmas season appear to be Aldi – they have pushed up sales by 10% thanks to their new Specially Selected range. Someone in their new product development team is getting a raise this year – their hampers have been attracting a lot of attention.

Their market share has increased by 0.6%, bringing them to 6.2% this year.

Iceland can claim to be the second fastest growers with an 8.5% sales boost, despite their current legal battle with the country over who gets to use the name.