Ireland’s big five supermarkets have been boasting so loudly about the discounts and bargains up and down their aisles of late that it’s a wonder shoppers have to pay anything at all for their groceries.
The blitz of price positivity was stepped up as 2024 dawned with German discount retailer Lidl unveiling a campaign highlighting fresh cuts that, it said, would take its price reductions since October to 600. Almost immediately Aldi was out promising cuts of its own.
Not everyone was pleased.
“If the retailers want to engage in combat for customers, it cannot be at the expense of farmers and producers,” the outgoing Irish Farmers Association president, Tim Cullinan, said in response.
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When it comes to food price hikes, there is no good news
His counterpart at the Irish Creamery Milk Suppliers Association, Denis Drennan, said the reductions would be the “first real test” for the new food regulator established last year to examine the commercial relationships between producers, processors and retailers.
He called on An Rialálaí Agraibhia – the Agri-Food Regulator – to “verify that any reductions in price introduced by supermarkets are funded out of their own margin” and not imposed on producers through “drastic and unilateral reductions in the prices paid to them”.
While every little helps when it comes to the prices we pay at the tills, anyone hoping the discounter dance will see prices tumbling will be massively disappointed, according to retail expert and TU Dublin academic Damian O’Reilly who says flatly that “there is no price war”.
While the discounter model is successful in Ireland, Aldi and Lidl’s combined market share is under 25 per cent and they still play a supporting role to the big three: Dunnes Stores, Tesco and SuperValu.
O’Reilly suggests their own-brand model – more than 95 per cent of what Aldi stocks is private label – struggles over Christmas as consumers loosen their purse strings.
“People want to go a little bit up market for Christmas,” he says.
He reckons they timed their pricing announcements to boost market share in January which is – for many people – lean.
“It’s a marketing strategy to get people in when they’re squeezed for cash. It isn’t a price war,” he says and he urges consumers to be cautious – if not downright sceptical – when faced with ads for deep discounts.
He believes greater transparency in the sector is essential and says the food regulator should make that an early priority.
That certainly seems to be the plan.
An Oireachtas hearing last month in advance of the formal establishment of the regulator by the Minister for Agriculture Food and the Marine, Charlie McConalogue, was attended by new chairman Joe Healy and chief executive Niamh Lenehan. The need for greater transparency up and down the food supply chain was highlighted on 15 occasions.
Days later at the first board meeting, the Minister was singing from the same hymn sheet as he expressed confidence that the regulator would “bring greater transparency ... by publishing analysis of information about price and market data relating to the agricultural and food supply chain and enforcing the rules on unfair trading practices.”
“I’m not saying get into pricing; I’m saying look to see who’s making the money in the supply chain,” O’Reilly says. “We haven’t had that transparency and maybe it’s time.”
A broad brushstrokes review of the supermarket sector was published by the Competition and Consumer Protection Commission last summer as fears of price gouging mounted. It found no evidence of supermarkets making excessive profits.
There is no complete picture of how much Irish supermarkets make, but Aldi publishes its Irish accounts and late last year announced that its profits more than halved to €17.1 million in 2022 as its policy of shielding customers from the worst effects of inflation hurt its margins. Given the competitive nature of the sector is unlikely Aldi is an outlier in this regard.
But if the supermarkets are not making super profits from the high prices, who is?
The question is being asked not just in Ireland. The UK’s Competition and Markets Authority has said an inquiry last summer into the food and groceries sector found that although record food inflation has been driven largely by rising input cost, up to three-quarters of branded goods makers increased their profitability, which contributed to higher food price growth.
Last year French supermarket giant Carrefour unveiled an “anti-shrinkflation” campaign and posted sticker warnings on products, typically from large multinational operators, that had shrunk in size but still cost more.
It took another step along the road of righteous indignation last week, telling customers in France, Italy, Spain and Belgium that products made by PepsiCo including Lay’s crisps and 7up were being taken off its shelves because of what it said were “unacceptable price increases”.
“We have been in discussion with Carrefour for many months and we will continue to engage in good faith in order to try to ensure that our products are available,” PepsiCo said in response.
It has previously said it planned “modest” price increases this year having upped its profit forecast for 2023 for the third time.
The bottom line is the bottom line and there is no escaping the fact that supermarket prices are still climbing. Data from retail analysts Kantar Worldpanel this week pointed to prices increasing by 7.1 per cent.
While it is a dramatic decline from a rate of 15.5 per cent recorded this time last year and the eighth month in a row that there has been a drop in inflation, prices are still going in the wrong direction for consumers.
“It is the lowest inflation level we have seen since August 2022, and we expect to see this gradual decline continue throughout 2024,” Kantar’s Emer Healy said
Industry sources suggest grocery inflation will be around 3 to 4 per cent over this year and, as O’Reilly says “there is a decrease in the increase but there’s still an increase”.
He warns that where we are depends on nothing upending the figurative apple cart, and that supply issues caused by the climate crisis could impact prices while the geopolitical situation remains very unstable.
Recent attacks in the Red Sea, a crucial maritime route for global trade, and the military response from the US and UK early on Friday morning could trigger a second wave of inflation, warned Nigel Green, the head of the financial advisory and asset management organisation deVere.
“Such disruptions could lead to delays, increased shipping costs, and potential shortages of goods, impacting economies worldwide. As global trade relies heavily on the efficient movement of goods through maritime routes, any disruption in the Red Sea could have far-reaching consequences,” he said.
The good news is that food commodity prices fell by 13.7 per cent in 2023 compared with 2022, according to the UN’s Food and Agriculture Organisation.
The less good news is that such a fall doesn’t necessarily point to a drop in food prices with commodity prices accounting for less than 10 per cent of the price you pay with labour and production costs, energy, water and rent all adding to the final cost.
Since April 2022, The Irish Times has been tracking the price of a basket of commonly bought goods. When we started, we put the price of the basket at €78.36.
The same products had climbed to €94.43 by last August, an increase of 20.5 per cent.
And by late this week the price had climbed to €98.44, a slight jump on last August but a 25.6 per cent increase in less than two years.
Spread over the course of a year, the higher cost amounts to €1,044 with prices likely to be higher still by the spring.
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