Yahoo Finance Sainsbury’s and Unilever deny claims of profiteering in cost of living crisis
Sainsbury’s and the Marmite maker Unilever have both insisted they are protecting shoppers from inflation, amid accusations that some companies are profiteering from the cost of living crisis.
“We are not profiteering in any form,” the chief executive of Unilever, Alan Jope, said as the consumer goods company insisted it was only passing on three-quarters of its increased costs to customers.
“We are very conscious that the consumer is hurting and that’s why we are not passing through the full price increases and are asking shareholders to bear some of the burden.”
His comments came as Unilever announced a 10.5% increase in sales in the first three months of the year led by a 10.7% rise in prices, indicating a dip in volumes. Sales of beauty, bathing and cleaning products had the fastest growth, while the amount of nutrition items, such as mayonnaise and stock cubes, fell back as prices increased by 13.4%.
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Jope said Unilever’s profit margins had fallen by two percentage points to just over 16% between 2021 and last year. The company said margins were expected to remain at that level this year and revealed it was forging ahead with a £750m share buyback, the third tranche of the shareholder payout announced last year.
Jope said he did not expect prices to begin to fall any time soon and that the business continued to experience large increases in the price of its raw materials, including a 20% jump in the price of chemicals, a 15-30% rise in cocoa and sugar, and up to a 20% increase in soya bean oil. “There is still high inflationary pressure,” Jope said.
Meanwhile, the chief executive of Sainsbury’s promised the supermarket chain would do everything it could as fast as possible to pass on any decrease in the price of goods.
Announcing a better-than-expected 5% fall in underlying profits to £690m and a near 6% rise in sales in the year to 4 March, Simon Roberts said the retailer was “absolutely determined to battle inflation for our customers”. He said the group’s already slim profit margins had slid to 2.99% from 3.4% as it had spent money on trying to offset commodity price, wage and energy inflation.
Sainsbury’s had spent more than £560m on keeping its prices down during high inflation over the last two years and that amount was £10m higher than what had been planned.
Roberts said widespread retail price falls were not likely to come soon as energy and labour costs continued to rise.
Inflation is when prices rise. Deflation is the opposite – price decreases over time – but inflation is far more common.
If inflation is 10%, then a £50 pair of shoes will cost £55 in a year's time and £60.50 a year after that.
Inflation eats away at the value of wages and savings – if you earn 10% on your savings but inflation is 10%, the real rate of interest on your pot is actually 0%.
A relatively new phenomenon, inflation has become a real worry for governments since the 1960s.
As a rule of thumb, times of high inflation are good for borrowers and bad for investors.
Mortgages are a good example of how borrowing can be advantageous – annual inflation of 10% over seven years halves the real value of a mortgage.
On the other hand, pensioners, who depend on a fixed income, watch the value of their assets erode.
The government's preferred measure of inflation, and the one the Bank of England takes into account when setting interest rates, is the consumer price index (CPI).
The retail prices index (RPI) is often used in wage negotiations.
Roberts said the cost of fresh foods such as meat, dairy and vegetables was likely to fall first, – pointing to a recent cut in the retail price of milk as an example – but said some problems with shortages, such as with peppers and eggs remained.
Unusually hot spring weather in Spain with temperatures reaching 38C was affecting the production of vegetables there as the growing season in the UK and the rest of northern Europe was only just starting to come on stream.
Sainsbury’s predicted its profits were most likely to fall again in the year ahead – forecasting £640m to £700m as inflation on wages and energy remained high despite the cost of freight transport easing.
Related: How can the UK tackle double-digit inflation?
Pre-tax profits slumped to £327m, down from £854m a year before, after £363m of one-off items, including the cost of restructuring its Argos business and write-downs on the value of stores.
He said: “We really get how tough life is for so many households right now which is why we are absolutely determined to battle inflation for our customers. Our focus on value has never been greater.
“We are now the best value compared to our competitors that we have been in many years and we are delivering improved market share performance in Sainsbury’s and Argos.”
Sales of groceries rose by 3% in the year – suggesting shoppers had bought fewer items while inflation remained above 10% for some months . Sales of clothing fell by 3% and general merchandise sales were down by 0.4%. Roberts said inflation on goods at Sainsbury’s was running at half the headline rate, which in March was 15% for food, according to the British Retail Consortium trade body.
Performance was strongest in convenience stores – where sales rose almost 10%. This was led by a return of workers and shoppers to city centres who bought little and often in an effort to reduce waste. Sales online fell by 13.5% after shoppers returned to stores as the pandemic eased, while supermarket sales rose by 1.9%.
Roberts said Sainsbury’s was going to be widening its range of budget products as interest had increased rapidly in recent months. Shoppers are also buying more frozen food and dining at home more often to save cash.
