Think supermarkets are all about price cuts? Think again

I often stop to buy milk at our local shop on the way back from school in the morning. On Wednesday, there was a Post It note stuck to the till. It said £27/£34.50. I asked what it meant. “Price of eggs”, came the answer. It turned out that the price of the big box of eggs the man who runs our shop buys every week to sell on has just gone up by a fairly astounding 27%.

But it isn’t just the eggs, he said, as I hung around the sweetie counter. “It’s everything.”

Then he ran me through a few other price rises. The one that sticks in my mind (purely because they are one of my favourite things) was the price of a box of 48 Mars bars. At the beginning of the year (so a mere two and a bit months ago) one cost £10.99. Now it costs £14.35. That’s a rise of over 30%.
 
Will the shop swallow the price rises, I asked, or pass them on? Pass them on, he said. “No choice. It used to be that things went up in pennies. Now they go up in pounds – and every time it happens all the profits get wiped out.”

I wonder what would happen if Bank of England governor Mervyn King went on a quick tour of the many corner shops in Leith to explain about how there is no need to worry about inflation, what with the CPI being under 4% and falling. I’m guessing nothing good.

It is worth bearing this little story in mind when you are admiring the commitment of the big supermarkets to cutting their prices on a regular basis. You might wonder perhaps how they manage it when trade prices seem to be rising so fast. The answer is that they do not.

The Sunday Times looked at a study from the University of Warwick this week. Researchers looked at “hundreds and thousands of price changes” over an eight year period, and concluded that supermarkets are more expert than you can possibly imagine at exploiting our “number blindness.” Consumers rarely ask how big a price cut is – they just notice that it has been cut. Same for price rises. So if you make lots of small cuts and a couple of big rises, the overall impression remains one of cuts.
 
Take Hellman’s Mayonnaise. In the period studied, Sainsbury’s cut the price of a jar 46 times, “including 16 cuts of just 1p.” But it also put it up on 12 occasions by more than 10p. No prizes for guessing whether it ended the period cheaper or more expensive.

On to Tesco. It’s currently in the middle of a ‘Big Price Drop’ campaign, one that according to Grocer magazine involves prices falling on many products, but rising on many, many more (the ratio is 2:3).

You might think this doesn’t matter – after all, you can’t blame the supermarkets for imported commodity and fuel inflation; and guff about price cuts is no more than good marketing. But it still bothers me, for the simple reason that it shows a lack of transparency, and a willingness to hide the truth in the detail that would make even a pensions product creator proud.

And we all know how that has left the general population feeling about the pensions industry. You’re probably all bored with my thoughts on this by now, but if you want to read more, my most recent columns on it are here and here.

You might also note that a survey out today from the National Association of Pension Funds (who have just started a conference in Edinburgh) shows that 55% of employees ‘lack confidence’ in the pensions system.