Inflation cost of living crisis food costs grocery

The latest challenge facing UK retailers is growing inflation. At a time when customers and retailers alike have been affected by rising energy and fuel prices, inflation has the potential to make matters even more difficult, particularly when it comes to essential purchases like milk, bread and eggs.

The price of milk has increased six times, from £2 for 2l six months ago to £3.20 now,” says Faisal Naseem, who runs two stores in Arbroath, Angus. “As a household staple, it’s a product that people are going to notice when prices go up drastically. It’s hard for retailers to keep the prices low though.

“My father, in 25 years in retail, has never seen price changes like this – as often or as high. We don’t know when it’s going to stop.”

Retailers wanting to look out for their customers and retain their loyalty must now run a balancing act between raising prices to the extent that they are unaffordable to shoppers, potentially driving them away, or keeping prices low and swallowing the loss themselves.

At a time when people have never been more price-conscious – checking prices on products they might previously have bought on autopilot – being aware of the prices offered by your immediate competitors is incredibly important.

Being able to quickly lower prices can keep you ahead of the competition and could make the difference in customer loyalty. This could see retailers lose out on margins, so finding other ways to claw this back becomes important, whether it’s looking further afield for cheaper options from other wholesalers and suppliers, or increasing the margin on other, less price-sensitive products.

Finding additional revenue streams will be incredibly important, so if your store isn’t offering home delivery, now might be the time to do it.

“With the rising cost of fuel, people are starting to look at delivery once again,” says Naseem. “Home delivery demand has slowed down compared with during Covid-19, but it’s still growing and the opportunity is huge.”

Keep margins in line

Faraz Iqbal of Premier Linktown Local in Kirkcaldy, Fife

Faraz Iqbal, of Premier Linktown Local in Kirkcaldy, Fife, says his customers know inflation is happening and, importantly, know it’s not his fault. “The customers are fully aware, they’re not having a go at us,” he says. “I don’t think retailers should be afraid to put prices up because it’s industry-wide.”

Iqbal is increasing his own-brand range so shoppers don’t lose interest in his more premium products. “People might make the switch to own-brand and we often make a bit of margin. I also sell lots of kegs, spirits and F’reals. Customers might look for these less often, so we’ve got to make sure they’re still buying them,” he says.

An opportunity lies in comparing the prices to those of nearby competition and adjusting them. “If a multiple nearby sells milk for £1.65 and you can charge that and make a similar margin then do it,” he says. “ Getting the margin is the best option.”

Alcohol can prop up margins

Sarj Patel from Pasture Lane Stores in Sutton Bonington, Nottinghamshire

Sarj Patel, from Pasture Lane Stores in Sutton Bonington, Nottinghamshire, has seen customers looking at prices more carefully than they did last year as inflation becomes bigger news. He tries to keep prices as low as he can and has found customers to be understanding if they do end up rising.

“People are seeing what’s happening in the papers and they’re seeing it in the supermarkets,” he says.

“They are far more cautious now on essentials like bread and milk.”

He keeps low margins on grocery necessities and stocks price-marked snacks and cereals to bolster customer confidence. To balance this margin loss out, he has raised the price on alcohol. “We’re still cheaper than the pub, so you can add pounds and pennies there and people don’t notice it as much as other products. Spirits is where you can raise prices.”

Widen the net for availability

Rav Garcha runs five Nisa stores in the Midlands

The traditional rules of play have disappeared when it comes to price as far as Rav Garcha, who runs five Nisa stores in the Midlands, is concerned. “It’s like the Wild West in pricing,” he says. “There aren’t any trick shots. Price-marked packs are still selling well and look okay to the consumer, but the cost to the retailer has gone up.”

Garcha talks to customers to explain any price increases, but hasn’t received any complaints so far. He’s treating the situation in a similar way to the availability crisis in 2020 and 2021.

“We’re doing what we did in the pandemic,” he says. “We’re sourcing everything we can from anywhere we can to keep the range and pricing in place. We’re trying to maintain promotional activity, but we’ve raised prices where we’ve had to. They might go up again this year, which would be the fourth time. We’re constantly assessing.”

Footfall is more important

Faisal Naseem runs two stores in Arbroath, Angus

Faisal Naseem, who runs two stores in Arbroath, Angus, knows that rising costs on essential products are a sure way to prevent customers from coming back through his doors, so he is willing to take a hit on margins there to keep footfall and loyalty up.

“We’re going to local dairies or buying from other wholesalers to keep prices low and availability high because sometimes our wholesaler still has empty shelves,” he says.

“Ultimately, if we have to take a hit on our margin to combat rising costs and keep those customers happy, we will do it.

“A little margin on a higher turnover is better than a bigger margin on a lower turnover. We are already limited on margins with snacks, so we try to increase them on pet food, wines and beers, but those items aren’t purchased by every customer.”

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