Britain’s second largest supermarket has reported a fall in annual pre-tax profits as it revealed that it had spent more than £560 million on keeping its prices low over the past two years.
Yet profits, not wages and salaries, are the main culprit here. Globally, those companies producing essentials have been doing enormously well from soaring prices. The record profits of the fossil fuel companies are notorious. But research by the union Unite has shown that the profits of the four largest agribusinesses globally, less well-known names like Cargill and ADM, rose 255% from 2019 to 2021.
Those soaring prices have then been fed down the supply chain into domestic profiteering. The big three UK supermarkets – Asda, Tesco, and Sainsbury – doubled their profits over the same time period.
Sigh.
Well farming hasn’t doubled its profits over the same period so someone is making an unjustified killing……
@Jim
Its the collective supply chain I suspect
Every link in that chain has an increased cost (plus a margin no doubt)
For once I don’t think the supermarkets are at fault, although of course some of them own parts of their supply chain
If, as the Left always seem to claim, rising prices are the result of greedy companies, the question that needs to be answered is this: if they are so greedy, why didn’t they raise their prices before?
“the question that needs to be answered is this: if they are so greedy, why didn’t they raise their prices before?”
Because the whole psychological atmosphere has changed. Prior to the rise in inflation if a company tried to raise its prices the competition would think ‘Hey here’s a chance to steal all their customers, lets drop ours a bit and everyone will flock to us’. Whereas now prices are going up left right and centre the reaction to the opposition putting their prices up is to think ‘Hey, we can put ours up now too!’. Even if there is no need to from cost rises. Everyone has been given a free pass to hike prices, regardless of cost increases.
Its one of those ‘Economics is the study of people, but thinks its the study of maths’ issues.
Yeah but what sort of margins do supermarkets operate on ? 2.5% ? Some goods have a very good mark up but not really food.
Their large profits are a reflection of their enormous turnovers. Shirley ?
“Its the collective supply chain I suspect
Every link in that chain has an increased cost (plus a margin no doubt)”
Precisely. For years I have watched the price of bread in the shops rise rapidly in times when the wheat price has risen sharply, and then only very slowly drop back (if at all) as the price of wheat drops back again (as it always does). Everyone in the processing and retail chain use the excuse of rising input prices to hike the shelf price (because there is some plausible rationale in that) and then do their best to hang on to the windfall gains at the input prices drop back again. Rinse and repeat for every cycle of the commodity prices.
The use of “profiteering” is like the use of “price gouging”: it heralds bollocks to come.
Whereas now prices are going up left right and centre…
Amazing how the greedy, conniving, rapacious capitalist bastards couldn’t raise prices for more than a decade, and then suddenly, they all can. Sure there’s some psychology to it – there’s also 15% more money (pick a figure you like) chasing after 3% less output after shutting down the economy for three years and teaching people that if they vote properly they can get paid for not working.
Anyone who thinks that a supermarket is overcharging them is free to shop at a competitor.
“Amazing how the greedy, conniving, rapacious capitalist bastards couldn’t raise prices for more than a decade, and then suddenly, they all can.”
Not really. The world is full of situations that appear to be operating to a certain set of rules, and then one small extra increment creates disproportionate immediate chaotic outcomes. Its the ‘add one grain of sand to a pile’ experiment. For ages the pile just grows in a very orderly manner. Then it starts to act chaotically – grain after grain is added and nothing much happens. Then eventually one more is added and this triggers a massive landslide that alters the entire shape of the pile. There are hidden fault lines that allow small changes to have massive impacts.
As far as I can see human behaviour is like this, its ‘sticky’. Things happen in certain way because thats the way they always have done. Monkey see, monkey do. And such behaviour will continue long after it should rationally have altered. But in reality fault lines are forming. Provide a bit of input from an unexpected source and the whole paradigm can flip on its head. We go from a situation whereby capitalists act as rapacious cost cutters to one where they become manic price risers. Same people, differ mindset. Everyone thought the same thing ‘We can’t raise our prices because someone will eat our lunch.’. Then price rises are forced on them, and they realise that not only can they raise prices by what they have to but some more on top as well. And everyone notices the extra rises and thinks ‘We’ll have some of that!’ and does it themselves. And it becomes a self perpetuating upward price spiral, just as the previous mindset resulted in a downward pressure on prices.
“Anyone who thinks that a supermarket is overcharging them is free to shop at a competitor.”
Who has also stuck all their prices up……….
@Jim – “Who has also stuck all their prices up……….”
Unless you think, in the face of overwhelming evidence and theory from past centuries, that capitalism does not work, then that’s only going to happen if there is a good reason for prices to have gone up. Those who believe that capitalism does not work, occasionally, manage to get into a position of power to do something about it, such as impose price controls. That always ends in failure – and the longer it resists market forces, the bigger the failure.
And that famously right-wing pro-capitalist publication, The Guardian, today published an article pointing out that evidence from their accounts shows that supermarkets have not been making excessive profits: https://www.theguardian.com/business/nils-pratley-on-finance/2023/may/08/uk-supermarkets-profiteering-sainsburys-tesco