Grocery Guru Ep #31: Supermarket Cost Price Increase

Join Andrew Grant and Darren A. Smith in the thirty-first episode of the Grocery Guru. They discuss increasing costs for suppliers. From diesel to cargo costs, to minimum wage labour. Whilst the supermarkets slug it out in a potential price war. And, all of this whilst everyone in the supply chain tries to recover Covid costs.

You Can View the Full Supermarket Cost Price Increase Transcript Below:

Darren A. Smith:

Hello and welcome to Episode 31 of the Grocery Guru. We're here with that guru, Andrew Grant. Andrew, how are you?

Andrew Grant:

Good morning, Darren. Yes. Very good. Thank you very much.

Darren A. Smith:

Good. Good. All right. Short week, this week. We're Friday. What's been happening in the world of grocery this week?

Andrew Grant:

Yeah. Something that I picked up on through the various news feeds we get access to, the nasty word inflation.

Whilst covid costs are still here, suppliers are increasing their costs

 

Darren A. Smith:

Oh, okay. All right.

Andrew Grant:

And a bit of a perfect storm brewing, I think, for grocery suppliers in that just about everything seems to be going up in price or is in severe shortage.

Darren A. Smith:

Okay. If I take you back to the '80s, there were price increase negotiations every year and they always went up about 3%,4%, 5%. The supplier asked for 11, we got it down. Okay. Now, what's happening is we got inflation coming again, but it's not the typical round that used to happen, is it?

Andrew Grant:

No. It's going to be really awkward, I think, for the poor old suppliers out there. Remember, everybody's trying to recover from this pandemic. Not only if you look at global food commodity prices, whether it's wheat or soya bean or whatever, they're in orbit. Well, actually, what worries me is, it's all those ancillary costs that buyers are really, really good at swiping away are going up like nobody's business. The price of a shipping container from China, $1,700 to $8,000.

Darren A. Smith:

Wow!

Andrew Grant:

That's a six fold increase.

Darren A. Smith:

Yeah. 100% increase. Wow.

Andrew Grant:

All of us have probably had to fill our car up for the first time in a year. That's gone up from what, about $1.08 for diesel to $1.28 plus?

Darren A. Smith:

Yeah. I think there was a point where Morrisons got it below a pound. But yeah, it's up now. I think I saw it yesterday, $1.38. Yeah, diesel's up.

Andrew Grant:

25% plus rise in your transportation costs. If you can get minimum wage labor, you're having to compete with the restaurant sector and everybody else. If you need somebody for your factory or to pick stuff in your fields, the shortages of labor and the cost of that labor is going up. Obviously, you've also got the COVID costs. You're probably having to run your factory with safe distancing rules and all sorts of various extra costs as a result of COVID. All of those costs will now be building up and building some severe pressure on supplier's cost bases. And unfortunately, it's those costs that buyers are so, so good at batting away.

Darren A. Smith:

Yes.

Andrew Grant:

I know you and I will have done it. It's very easy to say, "Well, you need to break down exactly what your make up of cost is." You say, "Shipping costs have gone up from 1,700 to 8,000," and I'll say, "Oh yeah, but you're using a spot price based in Shanghai. I've got the three month Singaporean index in my hand and that's flat." You're just then in a world of pain.

Darren A. Smith:

Very true. We've got costs going up in the supply chain of [inaudible 00:03:36] ancillary costs. Plus we've also got supermarkets that are trying to recover from what was a good increase in sales. We talked here a few weeks ago about the average increase was let's say 10% across the supermarkets. The but is that Sainsbury's for instance, I think it was 468 million pounds worth of costs on COVID.

Andrew Grant:

Yeah. Yeah.