Yahoo Finance Prices of Oxo, Bisto and Mr Kipling to rise after pound's Brexit plunge
Premier Foods joins companies seeking to offset weakness of sterling, after Unilever’s row with Tesco over Marmite prices
Shoppers will have to pay more for Oxo stock cubes, Bisto gravy and Mr Kipling cakes as the firm behind the brands prepares to raise prices to offset the fall in the pound triggered by the Brexit vote.
Premier Foods, which also owns Homepride, Batchelors and Ambrosia rice pudding, will become the latest in a string of companies to offset the weakness of sterling after Unilever clashed with Tesco over the price of products including Marmite.
The news comes as a survey showed supermarket prices had risen over Christmas for the first time in more than two years, underlining expectations that household budgets will come under increased pressure in 2017.
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According to the consumer consultancy Kantar Worldpanel, inflation returned with a 0.2% increase in like-for-like grocery prices for the 12-week period ending on 1 January compared with a year earlier.
These are not the official inflation figures, but are based on 75,000 products Kantar compares year-on-year in the proportions purchased by shoppers. The rise brings to an end a run of falling prices that began in September 2014 as competition in the sector intensified and supermarkets stepped up their price wars.
Premier has been in talks for months with major supermarkets such as Tesco and Asda over price hikes likely to be close to 5% on some ranges.
“The situation on pricing differs between our different categories and brands and is currently under discussion with our individual retail customers,” Premier Foods said.
“However, on average we are considering rises around the mid single-digit mark.”
The company is also considering adjusting “promotional mechanics”, meaning some offers, such as biscuit packs where customers get extra biscuits “free”, will be axed. It will also look to make cost savings in some areas, to avoid raising prices or cancelling promotions.
Sources familiar with the situation said price rises would be considered on a “case by case” basis, rather than across the board, and would only be imposed as a “last resort”.
The pound has fallen by about 18% against the dollar and 12% against the euro since the UK voted for Brexit last June, which makes imported ingredients more costly, exacerbating high commodity prices.
In a presentation to investors last year, Premier said it had no exposure to the dollar because it buys and sells equal amounts of the US currency. The firm said, however, that it spends about €50m (£44m) a year, suggesting it has taken a €6m hit from the currency effect.
Premier Foods will become the latest supermarket supplier to increase prices as a result of sterling’s fall, raising fears that consumers will be hit in the pocket by rising food inflation.
International firms have been particularly badly affected by sterling’s slump because they count their income in foreign currencies. That means that when they convert British sales back into their domestic currency, their value is reduced.
Unilever found itself at the centre of a high-profile spat with Tesco after setting out its intention to raise prices for products including Marmite and PG Tips. The food firm was eventually forced into a compromise agreement with the supermarket that curbed the rises, after a brief period in which Tesco ran out of some of its products.
Some companies have responded by keeping prices stable, but reducing what shoppers get for their money. Toblerone bars have been redesigned to reduce the amount of chocolate, with the brand’s US owner, Mondelez, blaming the change on “higher costs for ingredients”.
Birds Eye fish fingers and Walkers crisps, both ultimately owned by US firms, asked supermarkets for price rises of up to 12% last year.
Kantar said retailers offered fewer promotions over the Christmas period, and that fish and butter prices were among the biggest risers.
Fraser McKevitt, its head of retail and consumer insight, said: “The long-anticipated return to inflation suggests that the speed of growth in the overall market will continue to hasten in 2017, and both consumers and retailers will be looking at ways to avoid increasing the cost of the weekly shop.
“Last year retailers focused on simplifying their discounts and offers, and the level of promotional sales has fallen to 37% as a result, the lowest level over Christmas since 2009.”
The first rise in prices in two years at UK supermarkets reflects the broader economy, where inflation has started to rise. Economists, including those at the Bank of England, have said 2017 will be a tougher year for consumers, with household budgets squeezed as the sharp drop in the value of the pound pushes up inflation. Consumer price inflation is expected to rise to about 3% this year, from a current level of 1.2%.
Kantar said the supermarkets had enjoyed a record Christmas, with sales up 1.8% over the quarter to 1 January compared with a year earlier. Of the big four, Tesco had the strongest growth, with sales up 1.3%. Asda was the worst performer, with sales down 2.4%.
McKevitt said: “Year-on-year market growth has been helped by comparisons to a weaker Christmas in 2015, but sales were also buoyed by strong consumer appetite for festive celebration after a turbulent year. Shoppers spent £480m more at the tills than in 2015, leading to record sales for the Christmas period.”
The research group Nielsen said Britain’s supermarkets had their best Christmas in four years as a last-minute rush for groceries triggered a surge in sales.
Takings at the tills in the four-week period ending 31 December were up by 3.3% compared with a year earlier, making it the strongest growth since 2012 and a vast improvement on 2015, when sales were flat.
Mike Watkins, Nielsen’s UK head of retailer and business insight, said 2016 was one of the biggest-ever end-of-year trading periods for supermarkets.
He said: “The remarkable buoyancy in shoppers spending freely in the final two weeks of the year to enjoy the festivities was good news for retailers considering the consumer headwinds expected in 2017 with the return of cost price inflation – after three years of deflation – plus the ongoing uncertainty about the impact of Brexit on UK grocery sales.”
