During October, the UK Consumer Price Index (CPI) remained unchanged at 2.4%. This came as a surprise to many analysts, who had predicted the figure to rise to 2.5%. Whilst this is still above the Bank of England’s 2% target for inflation, it is much lower than the 3.1% peak reached in November 2017, caused by the decline in the value of Pound Sterling following the Brexit vote.
The lack of change in CPI comes despite average increases on the majority of energy bills and petrol, caused in large part by global crude oil prices. Average gas and electricity prices increased by 2%, whilst liquid fuels saw an increase of 7.2%.
One reason for the recent CPI stagnation was a reduction in the inflation of food costs, from 1.5% in September to just 0.9% in October. This was further supported by a decrease in prices for the clothing and footwear sectors. Retail price wars have been seen as the primary cause of the recent inflation figures, a sign of the times for a sector under increasing threat.
Competitive Food Market
When the CPI fell from 2.7% to the current 2.4% in September, the food sector was seen as the primary cause. At that time, cheaper meats and chocolates were seen as the specific cause. In October, the ONS stated that yoghurts and cheese made the largest impact for food. Despite surviving some of the issues seen across retail, the food market remains one of the most competitive in the UK.
Over recent years the market share of some of the UK’s largest food retailers has shrunk considerably, taken by the entrance and continued growth of prominent discount chains. In August 2017, the big three supermarket chains – Tesco, Sainsburys and Asda – had a combined market share of 58.9%. In comparison, the two major discount grocers had a market share of 12.2%. That is a huge increase from the 5.8% share they had at the same time in 2012. This year, the market share for the big three has continued to shrink by 0.8%, whilst the discounters have grown by 0.9%.
The growth of discount grocery chains has forced more popular brands to adjust. Market leader Tesco, in September, unveiled the lunch of a discount chain of stores in an attempt to regain market share directly. However, all supermarkets are having to evaluate their pricing strategies, even in the wake of Brexit, or risk losing more consumers.
Struggling Clothing Sector
The struggles of the non-food retail sector have been widely reported. Bricks and mortar stores have struggled against the rise of e-commerce, whilst online retailers have suffered a similar fate to the grocery market. Companies are struggling to maintain product margins against the price pressure of discount brands and increased alternatives. Fashion outlets have felt this the most, with companies such as John Lewis and New Look forced to close stores whilst online ‘e-tailers’ make profits. Online fashion retailer Boohoo’s profits rose by 22% in the first half of 2018, thanks to the shift towards online shopping and affordable fast-fashion.
These factors are what has led to clothing and footwear having the second-largest downwards contribution to the October CPI, as the costs of such items fell between September and October. Competition between brands is fierce and without a reliable market behind, many experts believe that these latest figures point towards a challenging Christmas period for many non-food retailers.
Changing Retail Landscapes
Recent economic uncertainty has had a noticeable impact on the habits of consumers. More than ever, people are looking for potential savings first, forcing companies to reduce prices even at times when imports and distribution could be costing more. Profit margins are consistently getting squeezed and a lot of companies are getting caught out by the market changes. However, there is hope for proactive retail companies who are willing to take a look at all of their retail expenses.
Here at ERA, we have years of experience streamlining the supply chains for some of the UK’s biggest retailers. Our experts have worked with companies to evaluate their procurement strategies in a range of cost sectors, such as packaging, distribution and utilities, helping businesses save millions on their expenses. If you are looking to cut down on your corporation’s costs, get in contact with the ERA team today and see what our experts could do for your business.