UK: Sainsbury's boss King issues warning to suppliers

By Petah Marian | 12 January 2011

The chief executive of UK grocer Sainsbury's said today (12 January) that suppliers would have to "work very hard" to justify price increases as commodity costs continue to rise.

Speaking to just-food, Justin King said that many of the commodity cost increases, particularly on wheat, had been "widely predicted" and that suppliers should have prepared by hedging against them.

On its private-label bread products, King insisted that Sainsbury's had forward contracted to "what we believe to be a fair price" for wheat. He argued that bakery companies like Warburtons, which recently pushed through price increases, "shouldn't be cut a break".

Data released last week by the UN claimed that commodity prices were at their highest level for 20 years. The rising cost of raw materials is feeding its way down the supply chain, with Kantar Worldpanel figures released yesterday showing that food inflation was running at 3% in the 12 weeks to 26 December.

However, the UK grocery sector remains marked by high levels of promotions. Earlier this week, Morrisons chief executive Dalton Philips said "promotional intensity" had stood at 40% over the Christmas period.

Sainsbury's King said the reason that the level of promotions is so high at the moment is largely because suppliers drove prices up ahead of the actual impacts of commodity inflation. Now, he said, manufacturers are having to fund this promotional activity to compete with private label. King claimed shoppers had spotted this and are now waiting for items to go on promotion, rather than paying full price.

However, he did add that commodity pressures taking place around the world would inevitably be passed through. Sainsbury's, he said, would "continue to seek incremental savings". He cited improvements to the retailer's navigation systems, which would mean that "our lorry drivers don't get stuck in traffic jams".

Sectors: Bakery, Commodities & ingredients, Financials, Retail

Companies: Sainsbury’s, Warburtons, Morrisons

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