Blog: Dean Best2011 starts in earnest

Dean Best | 4 January 2011

Welcome back. I trust you had a relaxing Christmas and New Year break. 2011, however, has started in earnest with a number of fascinating stories on our pages today.

The news headlines in the UK this morning were dominated by the increase in VAT, which rose from 17.5% to 20% from midnight. Of course, most food is exempt from VAT but there are some items - mainly the nice stuff like ice cream and chocolate - which is taxable and the increase is likely to have an effect on consumption as consumers look again at their grocery bills in the weeks and months ahead.

Unsurprisingly, retailers have been falling over themselves to loudly insist that they will delay passing on the VAT increase to shoppers. Price comparison website Kelkoo has estimated that the hike will cost each household around GBP520 a year and retailers are jostling to persuade shoppers that they can save them money. Tesco and Morrisons, two of the UK's largest grocers, have already launched a swathe of price cuts to lure consumers, cautious after Christmas and nervous about what the lies ahead for them in 2011.

With retailers pledging not to immediately pass on the VAT increase, it will be a while before we see what impact the hike will have on prices. With food largely exempt, the impact could be less on grocery shelves. In theory. However, with fuel costs rising and commodity prices remaining volatile, 2011 promises to be a year when food prices come under pressure. And, even if retailers find a way to limit price increases, just the perception that prices could rise will affect consumer behaviour and, consequently, how manufacturers and grocers react to gain sales.

Elsewhere, the future of one key supplier to UK retailers remains uncertain. Northern Foods, which is planning to merge with Ireland's Greencore to create one of the UK's largest own-label suppliers, continues to be in the M&A spotlight. Today, the country's Takeover Panel effectively told Boparan Holdings - the UK poultry-to-fish group linked to a possible hostile bid for Northern - to put up or shut up. Boparan Holdings, owned by Northern investor and Indian business tycoon Ranjit Boparan, has until 21 January to say whether it will make a bid for the UK firm. Northern and Greencore investors are set to meet on 31 January to vote on their companies' planned merger. It is set to be an interesting month for three large suppliers to UK supermarkets.

And, over in India, Carrefour has at last planted its flag on the country's soil with the opening of its first cash-and-carry store in New Delhi.

The French retail giant and its plans for India have been the subject of months, if not years, of speculation. Carrefour follows the likes of Wal-Mart, Tesco and Metro Group into India, although what will be more telling than its first wholesale outlet will be whether it joins forces with one of the country's local retailers with a franchise deal.

Carrefour has been linked to The Future Group and, should the two sides sign a franchise agreement, the Indian firm will set up stores that source directly from the French retailer.

The size of the Indian market - and the fledgling nature of its retail sector - means that Carrefour's single store will barely make an immediate mark in the country. However, after a year in which Carrefour sold off stores in Asia and was forced to restructure its business in western Europe, it has started the new year on a more positive note.


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