Our industry – like so many others – has a ready-made excuse for when things go wrong: Brexit. But let’s take a look at the real issues retailers face, says Neville Rhodes
Let’s blame Brexit. Ever since the furore over the Marmite price hike added to the gaiety of the nation, more and more suppliers, distributors, manufacturers and importers have been clambering on to the ‘blame Brexit’ bandwagon.
In the past week alone I’ve read warnings that the fall in the value of sterling following the Brexit vote could mean higher prices for sandwiches because the cost of butter has increased; prices of crisps could go up because sunflower oil used to bake them is priced in dollars; and the price of fresh fruit and vegetables grown in the UK could be affected by the higher costs of imported packaging materials. It’s not the apples, it’s the polystyrene tray they sit on.
Any day now I expect somebody to blame Brexit for late papers.
Brexit is not really the villain, of course: it’s just a very handy scapegoat for all sorts of other cost pressures that are normally relieved by price rises.
However, raising prices, particularly in the food industry, is no longer an easy option. Competition from the discounters has forced the supermarkets to cut their prices, and they in turn have put pressure on manufacturers to hold their prices down.
The result has been sustained food price deflation, with commentators suggesting that food shopping in supermarkets will be cheaper this Christmas than it was three years ago.
This inevitably influences the pricing of groceries in c-stores, and with low rates of inflation in the economy as a whole – November’s 1.2% increase in the Consumer Prices Index (CPI) was the biggest for more than two years – putting up prices of other core products to cover higher costs is risky, particularly for independent retailers.
So a bit more inflation would be very welcome – if only to help pay for the National Living Wage (NLW), which is due to go up by 4.2% next April.
Actually, there is nothing unusual about minimum wage rates rising two or three times faster than prices.
Since the minimum wage was introduced in 1999 at £3.60 per hour, the legal minimum rate of pay for adult workers has doubled to the current NLW rate of £7.20, a 100% increase, while prices over the same period, as measured by the CPI, have risen by only 40%.
With the NLW planned to increase by 25% to £9 an hour by 2020, and annual inflation forecast to average only around 2.5%, c-store retailers who stick to their existing product range, even if they increase volumes through promotions, will struggle to maintain the profitability of their business.
In the face of strong competition and limited scope for increasing prices, the best option I see for independent retailers is to broaden their offer with as many new products and services as they can accommodate – and to keep doing it.
Over the years, I’ve watched several small retailers transform their businesses by changing what they sell. They aren’t rocket scientists, but they look at what other retailers are doing and listen to their customers. Happy 2017.