Cost of living crisis strikes fear into all to become story of 2022

Whether it was Tesco’s pricing spat with Heinz, Asda’s putting security tags on packs of Lurpak, or Morrisons’ exit from the ‘big four’ at the hands of Aldi, the impact of inflation this year has gone far beyond just rising prices.

Vladimir Putin’s decision to invade Ukraine in February caused food prices to spike thanks to the importance of both countries in producing commodities such as wheat. It also triggered the energy price spike that continues to trouble businesses and households alike. In reality though, the factors causing prices to rise at the fastest rate in 45-years is driven by myriad other factors, from labour shortages fuelling higher wage costs, to higher transport costs following the Covid pandemic, and the stultifying effects of Brexit on imports.

Inside the food industry, it has caused hostility and embitterment as supermarkets and manufacturers have come into conflict over price rises. Supermarket buyers report an unprecedented wave of requests for cost price increases, as suppliers have fought for every price rise they can get while simultaneously pushing their own suppliers to keep costs down. “Every morning it feels like you’re about to go to war,” said one supplier involved in regular negotiations. “It’s horrible.”

In some cases, the fallout has gone public. Tesco in particular opted to play hardball, delisting major manufacturers like Heinz and Colgate as a tactic on the brutal playing field of price negotiations. As Tesco said bluntly at the time of the Heinz dispute: “We will not pass on unjustifiable price increases to our customers.”

The discounters, particularly Aldi and Lidl, are the big winners. Aldi is now the UK’s fourth-biggest supermarket, overtaking Morrisons in September, thanks to its relentless focus on price over many years. Now, with shoppers watching every penny they spend, Aldi is pinching new customers from every competitor. The biggest damage is being inflicted on Tesco but even Lidl was not immune to an exodus to its arch-rival.

As Aldi UK & Ireland CEO Giles Hurley noted, “there is an unprecedented move within the grocery market, where shoppers are moving from brands to own label,” but it’s not limited to the discounters, with Asda struggling to cope with demand for its new Just Essentials value range, for example.

Inevitably, supply issues have also led to shortages, with products ranging from Alpro soy milk to carbon dioxide running short. Most notable was the lack of sunflower oil after Russia invaded Ukraine, a crucial ingredient across manufacturing. But since the autumn supermarkets have been rationing eggs, while Christmas saw shortfalls of turkeys due to yet another factor – an avian flu epidemic – as well as wider cost price inflation, of course.