Weak pound 'could raise supermarket prices'

Supermarket prices could rise if the pound's fall continues, retail analysts have said.

Some 40% of food consumed in the UK is imported meaning "any long term change in exchange rates may threaten the current period of cheaper groceries," according to Kantar Worldpanel.

Online supermarket Ocado also said the weaker pound could lead to "inflationary pressure".

The pound has fallen about 11% against the dollar since the Brexit vote.

Tough competition from discount chains has helped to pushed the price of groceries lower over the past two years.

Kantar's comments came as it said like-for-like grocery prices fell 1.4% in the 12 weeks to 19 June compared with a year earlier, marking the 23rd consecutive period in which prices have fallen.

In the 12-week period, the combined market share of German discounters Aldi and Lidl hit a record 10.5% as they continued to attract customers from traditional supermarkets.

The "big four" grocers - Tesco, Sainsbury's, Asda and Morrisons - continued to shed market share, according to Kantar.

Kantar's data reflects the period ahead of the referendum vote. The company's head of retail and consumer insight, Fraser McKevitt, said: "The immediate economic uncertainty is unlikely to cause a substantial fall in grocery volumes, as demonstrated by the 2008 financial crisis when basic food, drinks and household sales proved resilient.

"Historically, higher prices have led to consumers looking for less expensive alternatives such as own-label products, seeking out brands on promotion or visiting cheaper retailers."

Changing sentiment

Kantar's comments came as Ocado's chief executive Tim Steiner also said that a weak pound could see prices rise.

"Currency weakness may bring some inflationary pressure in the food market, which wouldn't be such a bad thing given the deflation we've seen," he said.

Mr Steiner was speaking after the online supermarket reported an 18% rise in pre-tax profits to £8.5m in the six months to 15 May.

He said the referendum vote had not affected demand so far, and he did not expect "a significant impact" on the business.

Research firm Nielsen, which reported year-on-year supermarket takings rose 0.4% in the four weeks to the end of 18 June, marking the first rise in almost a year, said the Brexit vote could change shoppers' behaviour in the long term.

"We can expect some change in consumer sentiment and, possibly, a return to low inflation next year - should sterling's depreciation continue and global commodity prices strengthen," added Mike Watkins, Nielsen's UK head of retailer and business insight.

Jon Copestake, chief retail and consumer goods analyst at the Economist Intelligence Unit, said he expected the outcome of the vote to hit supermarkets sales due to higher import prices and consumers cutting spending.

He said discounters were best-placed to cope with the changes, while mainstream supermarkets would be hit the hardest.

"It is difficult to anticipate anything but a worsening retail scenario along the same lines as what has come before," he said.