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| Cost of British grocery brands to rise due to fall in value of sterling | |
| (35 minutes later) | |
| The prices of Patak’s pickles and Jordans muesli are to rise, after the brands’ owner, Associated British Foods, admitted it was facing cost pressures from the fall in the value of sterling. | The prices of Patak’s pickles and Jordans muesli are to rise, after the brands’ owner, Associated British Foods, admitted it was facing cost pressures from the fall in the value of sterling. |
| “The days of food price deflation are behind us,” said George Weston, the boss of ABF, which owns a string of British grocery brands including Twinings and Kingsmill as well as the Primark clothing chain. “There is a lot of cost pressure on the supply chain,” Weston added. “In the next 18 months a lot of cost pressures will feed through to higher prices.” | “The days of food price deflation are behind us,” said George Weston, the boss of ABF, which owns a string of British grocery brands including Twinings and Kingsmill as well as the Primark clothing chain. “There is a lot of cost pressure on the supply chain,” Weston added. “In the next 18 months a lot of cost pressures will feed through to higher prices.” |
| Weston said ABF aimed to offset the rising cost of sourcing ingredients from overseas by buying more in the UK. It expected to buy more British wheat for its Kingsmill bread, switching away from German suppliers, for example. | Weston said ABF aimed to offset the rising cost of sourcing ingredients from overseas by buying more in the UK. It expected to buy more British wheat for its Kingsmill bread, switching away from German suppliers, for example. |
| But Weston said some goods, such as spices for Patak’s sauces and pickles and dried fruit and nuts for Jordans and Dorset Cereals mueslis, had to be bought abroad and the pressure for price inflation was increasing. He would not confirm if the company was already in talks with supermarkets about price rises, although he did say ABF had not increased the price of Twinings tea at this stage, despite talk of price rises by rival Typhoo. | But Weston said some goods, such as spices for Patak’s sauces and pickles and dried fruit and nuts for Jordans and Dorset Cereals mueslis, had to be bought abroad and the pressure for price inflation was increasing. He would not confirm if the company was already in talks with supermarkets about price rises, although he did say ABF had not increased the price of Twinings tea at this stage, despite talk of price rises by rival Typhoo. |
| Any goods bought in euros or dollars have increased in price for British companies as the value of the pound has fallen by about 15% against the euro and the dollar. | Any goods bought in euros or dollars have increased in price for British companies as the value of the pound has fallen by about 15% against the euro and the dollar. |
| Analysis by the Guardian suggests price rises have already begun to filter through to the shop floor with a basket of 20 items supplied by Unilever, the maker of Marmite and Pot Noodle, rising by an average of 5.7% since the Brexit vote across the UK’s four biggest supermarkets. | Analysis by the Guardian suggests price rises have already begun to filter through to the shop floor with a basket of 20 items supplied by Unilever, the maker of Marmite and Pot Noodle, rising by an average of 5.7% since the Brexit vote across the UK’s four biggest supermarkets. |
| The evidence comes after a public spat between Tesco and Unilever over cost rises and the news that Typhoo tea, Birds Eye and Walkers crisps were also asking supermarkets for price rises. Birds Eye is thought to be threatening to reduce pack sizes in order to offset cost increases while Toblerone has remodelled its bar in the UK. | The evidence comes after a public spat between Tesco and Unilever over cost rises and the news that Typhoo tea, Birds Eye and Walkers crisps were also asking supermarkets for price rises. Birds Eye is thought to be threatening to reduce pack sizes in order to offset cost increases while Toblerone has remodelled its bar in the UK. |
| Weston said Patak’s would not be changing its recipes to use less spice and reduce costs as products had been “developed to be the best products they can be”. | Weston said Patak’s would not be changing its recipes to use less spice and reduce costs as products had been “developed to be the best products they can be”. |
| On clothing, Weston said Primark faced cost pressures, as much of its stock was bought in dollars, but he said the company was determined to remain the cheapest chain on the high street. He said it was not clear to what extent suppliers’ cost increases would feed through to the high street but if it needed to it would “take the hit” on profits. | On clothing, Weston said Primark faced cost pressures, as much of its stock was bought in dollars, but he said the company was determined to remain the cheapest chain on the high street. He said it was not clear to what extent suppliers’ cost increases would feed through to the high street but if it needed to it would “take the hit” on profits. |
| Profit margins at Primark slid by 1 percentage point to 11.6% in the year to 17 September, in the face of the devaluation of the euro against the dollar since early 2015. Overall operating profit rose 2% to £689m as sales rose 11% to £5.9bn as the chain expanded into the US and Europe. That contributed to a 4% rise in sales at ABF year-on-year to £13.4bn and a 5% rise in underlying pretax profits to £1.07bn. | Profit margins at Primark slid by 1 percentage point to 11.6% in the year to 17 September, in the face of the devaluation of the euro against the dollar since early 2015. Overall operating profit rose 2% to £689m as sales rose 11% to £5.9bn as the chain expanded into the US and Europe. That contributed to a 4% rise in sales at ABF year-on-year to £13.4bn and a 5% rise in underlying pretax profits to £1.07bn. |
| Weston said Primark’s plans were unaffected by the Brexit vote and it intended to open about 10 stores in the UK in the year ahead, out of 25 planned globally. The group is due to open at least three more outlets in the US, two more in Italy, two in France and a flagship store in Amsterdam. | Weston said Primark’s plans were unaffected by the Brexit vote and it intended to open about 10 stores in the UK in the year ahead, out of 25 planned globally. The group is due to open at least three more outlets in the US, two more in Italy, two in France and a flagship store in Amsterdam. |
| He said about half of Primark’s sales were now made overseas and the benefit of the rising value of that business in pound terms provided a “natural hedge” against the pressure on profits in the UK caused by higher import costs. | He said about half of Primark’s sales were now made overseas and the benefit of the rising value of that business in pound terms provided a “natural hedge” against the pressure on profits in the UK caused by higher import costs. |
| Overall, Weston said the decline in the value of sterling brought “both benefits and challenges” for ABF. He said UK-sourced products would look cheaper abroad and more competitive against imports at home despite the cost increases. “The lower rate of sterling makes UK food manufacturers very competitive. We’ve just started selling muffins to Germany and cereals to Australia. Patak’s sells well in Canada and there will be a boost to our attempts to sell overseas because of the lower rate of sterling,” he said. | Overall, Weston said the decline in the value of sterling brought “both benefits and challenges” for ABF. He said UK-sourced products would look cheaper abroad and more competitive against imports at home despite the cost increases. “The lower rate of sterling makes UK food manufacturers very competitive. We’ve just started selling muffins to Germany and cereals to Australia. Patak’s sells well in Canada and there will be a boost to our attempts to sell overseas because of the lower rate of sterling,” he said. |