Brandflation - Why Are Brand Prices Rising Faster?

Just in case you hadn’t noticed, the price of everyday staples in the supermarket is grim. Everything from bread to table sauces is excruciatingly expensive and, irrespective of all the bluster and promises from supermarket bosses about prices coming down as inflation starts to relent, everyday people are still not seeing the reduction in cost at the tills.

Today, however, we’re going to narrow our point of focus to specifically ‘branded’ items and the current truth about the cost of these said items. Primarily, we’ll be looking at what it means for the future of some of the best-known food brands that have graced our supermarket shelves for generations, as it emerges that people are swerving them for cheaper brands due to ludicrous price rises.

Since the cost-of-living crisis began, the cost of food and energy have been huge talking points and the subject of collective dismay between households. As people started experiencing hits to their budgets, they started noticing certain things – one of these things was that branded items were significantly higher than the current rate of food inflation.

This led people to start questioning whether there was a good reason for this ‘brandflation’, or indeed whether ‘greedflation’ was at play (i.e., large companies making grotesque amounts in profit at the expense of hard-pressed customers under the disguise of inflation and rising production costs) – and it is this very question that we are going to try to unpick and provide answers to.

Which? Assessed almost 80 branded items from all six major supermarkets (Tesco, Asda, Morrisons, Sainsburys, Ocado and Waitrose.) They compared certain branded items to the same period three years ago. The results speak for themselves.

All the branded products (sliced bread, table sauces and butters) that were looked at had all gone up on average by nearly 23 per cent. At the time of reporting, the current rate of food inflation stands at just short of 15 per cent. That’s an anomaly of 8 per cent.

The research also highlighted that the biggest culprit is Heinz, one of the biggest names in the food industry. Products in their range across the big six supermarkets have risen well above inflation, with their best-selling soups rising to over 45 per cent. And their tomato sauce? Well, that went up a whopping 53 per cent. In fact, such was the shock at the enormous price increase put out to the masses by Heinz, that Tesco actually stopped stocking their products while a price dispute was ongoing. The supermarket giant has now started to stock the famous brand name again, with Heinz retaining their eye watering price tag.

It’s important to note that it isn’t just Heinz that has been singled out for raising prices; brand butters such as ‘Lurpak’ and ‘Anchor’ have also been named as two food giants that need to answer questions regarding increases. A standard 500g tub of Anchor butter has gone up over 44 per cent since the cost-of-living crisis came about, whilst a similar sized pack of Lurpak has gone up close to 36 per cent. These increases are not small; these rises are substantial and bought together, can have a devastating impact on family budgets. Milk and cheese, as well as other dairy products, have also sky-rocketed in price.

It is without doubt, however, that Heinz takes the biscuit (pardon the pun!) when it comes to price increases. In only 12 months, research has shown that the company has doubled the price of some of its best-loved products, with its famous tomato ketchup going up 60 per cent in a year. In total, across all the largest supermarkets, Heinz has increased prices on over 500 of its products.

Hence why, questions need answering.

So far, a Kraft Heinz spokesperson has told a news outlet: “Like the rest of the food industry, we continue to face significantly increased production costs – whether it’s ingredients, energy, or packaging – and rising inflation. Our energy prices alone have increased by 609% since 2019.

“We’re absorbing costs wherever we can, however we've reluctantly had to increase our prices to retailers – a measure that continues to be a last resort.

“We understand the pressures consumers are currently facing. To help offset these, we’re working collaboratively with retailers to offer great value through regular promotions and promotional cycles across a range of our products.

“We’ve adapted our offer to consumers with different pack sizes, value ranges and lower price points. We are also continuing to look for efficiencies in our operations.

“We remain committed to giving our consumers great tasting and nutritious products without compromising on the quality they know and trust, and continuing to invest back into the more than 3,000 people we employ across the UK.”

Reading between the lines of this hefty statement, it is fair to say that Heinz is putting a lot of their increased pricing strategy down to the fact that they themselves have had to endure spiralling costs in the form of energy and inflation. Fair enough, you may say.

The statement, however, opens up more questions than answers. For instance, energy prices have been falling for a good few months now, yet not one product within the range has been reduced in price. Not one. Why not? Some supermarket alternatives have started to come back down in price, why not theirs? If the spiralling costs have been a direct result of energy costs rising, and those aforementioned energy costs are starting to come back down, why isn’t the price coming down for the consumer at the end of the line?

Similarly, only last week a chief economist admitted that whilst inflation was coming down and energy bills would start to come down for millions of people, the chances of food bills coming down were ‘unlikely’.

Perplexing.

And what about the brand companies themselves? There are whispers that they also have their hands tied because they are in big trouble financially. Supermarket own brands have been a threat to them for years, and these last few years will have seen them take an almighty hit. Many of these companies may have taken out loans to get them through the energy and inflationary crisis, and we know that many ‘brand name’ companies in the food sector have been letting staff go to try and claw back money. Are the extraordinary price rises a sign that these brands may not be on our shelves for much longer because they are close to going bust? Or is it a sign that excessive greed is at play?

Adding further fuel to the argument that it is in fact brand companies and not the supermarkets that are profiteering, is the news that the Competition & Markets Authority is to investigate a new phase of rising grocery prices. This comes after an initial study found no evidence that there was profiteering by supermarkets. This new investigation will this time focus on the role of international food conglomerates, and in particular the metrics of financial performance of branded and own-label suppliers.

According to the watchdog, there were higher profit margins for these companies in comparison to grocers – and this needs clarification.

A report from the CMA reads: “Associated British Foods (which produces various branded products, including Kingsmill bread, Silver Spoon sugar and Twinnings tea) has achieved operating margins between 10pc and 12pc. 

Intriguingly, he also said that food prices may never go back to where they were before. This suggests that there’s other factors at play.

It's not just "Mortgage Interest Rates That Aren't Coming Down"

Are the brands being greedy? Are the supermarkets being greedy? Are both being greedy? One of the biggest issues that we believe could be at play here is that many of the supermarkets took a gamble and locked in prices prematurely after the Ukraine war and the onset of rising inflation. Our theory is backed up by another chief economist who was reported as saying: “Some firms decided to sort of lock in their purchases of commodities in international markets in order to reduce uncertainty, but potentially locked in at quite high levels of prices and they’re still passing that through the system into what ultimately we’re paying for in shops.’

In effect, the knee jerk reaction of the supermarkets may have spectacularly backfired for the consumer.

“International branded suppliers, such as Mondelez, Unilever and Coca-Cola, do not report the performance of their UK businesses, so it is not possible to assess the performance of their UK businesses in isolation using publicly available information. 

“However, at a consolidated level, these companies achieve operating margins in excess of 15pc. For context, the retailers’ operating margins have historically ranged from 1pc to 5pc.”

The report added: “Overall, it appears that larger retailers have the information and bargaining power necessary to ensure that the prices they pay to own-label suppliers are competitive but may have less ability to bargain with large suppliers of branded goods.”

Is it true to say that these ‘brand’ companies have got our large supermarkets over a barrel? Tesco tried to take on Heinz when they raised their prices. Weeks went by where Tesco customers couldn’t get any Heinz products, but eventually, they came back to the shelves with Tesco having agreed to pay the company more for their products. The question is, why?

There is a lot more at play than supermarkets being greedy here, but what that is, is not clear yet.

So, what will happen if these brand companies get found out for ripping us all off and many lose their customer base? Would it be the end of the world? Could we live without Heinz Tomato Ketchup? Surely supermarket own brands would fill the void?

It all depends who you talk to.

A recent health study found that whilst it is more than tempting to buy supermarket-own products as opposed to more expensive branded options, it can actually be worse for your physical health.

A nutritionist from ‘Vitaminology’ says that some cheaper versions of produce “contain more sugar, processed oils and starchy fillers that are low in nutrients and are terrible choices for people managing weight or who are at risk of diabetes”.

Yet, on the other hand, another health study has found that opting for lower priced bargain labels in many instances can be better for you. Typically speaking, these products are cheaper because they put less fats and sugar into their products, therefore making them healthier alternatives in terms of consumption and cheaper to mass produce.

Putting less high fat ingredients into the product such as butters, sugar and oils makes the product cheaper to make. If the product has less of these ingredients in, it is also better from a health perspective.

Ultimately, we believe what you purchase is down to preference and personal choice. However, recent figures highlight that well over 50 per cent of people are now regularly purchasing the cheaper brands in a bid to curb their spending. Brands have never been more in trouble.

We do believe it would be a shame if we start to see the end of the big-name brands. Mainly because choice is a fundamental part of being in a good and balanced society. The choice to choose what we eat and what we drink is a bit part of the shopping experience in this country and losing big name brands would impact that massively. People won’t be taken for fools, though. The price has to be right.