Savvy British shoppers and discount stores force down retail prices

Gordon Rayner
08 Jul 2014

Prices falling rapidly as fiercely competitive supermarket sector helps drive down cost clothing and consumer goods
Falling prices have in part been attributed to the popularity of Aldi and Lidl, the discount supermarket chains, particularly among middle classes Photo: Alamy
Shop prices fell at the steepest rate for at least eight years last month as the popularity of discount stores among the middle classes helped to drive down the cost of clothing and consumer goods.
The overall price of items at the till fell by 1.8 per cent compared with June last year, with the price of clothes down by 13.7 per cent year-on-year.
The figures, compiled by the British Retail Consortium/Nielsen shop price index, show the fastest drop in prices since the trade association began compiling data in 2006.
It was also the 14th month in a row in which shop prices fell, easing the pressure on households where wage-earners have suffered pay freezes.
Although the price of food is still rising, it did so by only 0.6 per cent in June, the lowest level of inflation since the index began.
The popularity of Aldi and Lidl, the discount supermarket chains, particularly among middle classes, was part of the reason for the price drops, analysts said.
The “big four” supermarket chains — Asda, Sainsbury’s, Tesco and Morrisons — have cut prices to compete with Aldi and Lidl, which together account for 8.3p in every pound spent on groceries. This has gone up from 6.7p a year ago.
Christine Cross, the chief retail and consumer adviser at PricewaterhouseCoopers, the auditor, said that discount stores were springing up in the most affluent parts of the country, signalling a permanent change in spending habits.
She said: “The recession has changed people’s spending habits and all of the discount stories, such as Aldi, Lidl and pound stores, are pushing into the South East and South West at an increasing rate. If you look in their car parks you will see as many BMWs as beaten-up cars because people are feeling the pinch.
“Aldi is also building a reputation for award-winning wines and other products, which is tempting shoppers towards them.”
The low prices are expected to continue for another year at least. The monthly report said that apart from volatile coffee prices, due to a drought in Brazil, the global outlook for rising commodity prices “remains modest”.
Howard Archer, the chief UK economist at Global Insight, the financial analyst, said: “Inflation is going to stay muted for some time to come, certainly for the rest of this year and into the beginning of next year. Although the economy is doing well and employment is high, earnings growth is still very weak so people are still pretty squeezed and they are cautious about what they spend.
“The shops are having to price competitively to get people to part with their money. There is clearly a big supermarket war going on, and Lidl and Aldi are a big factor in that.” Mr Archer said that the rise of discount supermarkets and shops such as Poundland signified a long-term “change in culture” in the nation’s spending habits. He said the lengthy economic downturn meant “people have got into the habit of looking for the best deals”.
Prices for non-food items fell 3.4 per cent last month, compared with 2.8 per cent in May. While clothing prices fell fastest, the price of electrical goods was also down 4 per cent compared with June last year.
Ms Cross said that prices would eventually rise again, partly because the era of cheap foreign labour was gradually coming to an end. “Retailers who have imported from south-east Asia in the past are having to relocate factories to other parts of the world because wages are going up in Asia,” she said. “There will also come a point where retailers can no longer afford to keep cutting prices just to chase market share, partly because of a lack of cheap credit for them.”
The figures only take into account the prices of food and consumer goods. Overall inflation remains at 1.5 per cent because of increasing fuel, utility and other household bills.
Helen Dickinson, the director general of the British Retail Consortium, said: “This is the deepest level of deflation in non-food and the lowest rate of inflation for food since 2006 when our records began.”