Greedflation? There’s no evidence supermarkets are profiteering – and this is why

Published

2 years ago

May 18, 2023

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It is hardly surprising that, confronted with the highest levels of food and drink inflation since 1977, some people have concluded that supermarkets are “profiteering”.

Those people, apparently, include Liberal Democrat leader Sir Ed Davey, and the Unite union’s general secretary Sharon Graham.

Both have used that incendiary term over the past week, with Sir Ed going so far as to call for an investigation into the sector by the Competition and Markets Authority, the UK’s main competition watchdog.

The CMA was quick to close down that option when, on Monday, it made clear that “global factors” had been “the main driver of grocery price increases” and said it “has not seen evidence pointing to specific competition concerns in the grocery sector”.

It did though, presumably following a degree of ministerial coaxing, announce it was stepping up its work in the grocery sector “to understand whether any failure in competition is contributing to grocery prices being higher than they would be in a well-functioning market”.

The CMA’s instincts not to pursue a full-blown investigation into the grocery market are well-founded.

For there is absolutely no evidence to point to profiteering by supermarkets.

Take Tesco, the UK’s largest grocery retailer. It has reported a 7% drop in its operating profits for its retail businesses in the UK and Republic of Ireland in the financial year just ended.

It expects its profits for the financial year just started to be “broadly flat”.

Or take Sainsbury’s, the number two player in the market. It has recently reported a 5% drop in its underlying pre-tax profits for the financial year just ended and, like Tesco, expects profits growth to be flat this year.

These are probably the best indicators of what is going on in the market because Asda and Morrisons, the remaining two members of what used to be called the “big four” in recent years, have both recently changed hands and so their numbers will be less “clean” in the jargon.

But they too, like Tesco and Sainsbury’s, have also seen declines in their pre-tax profits for the most recent reporting periods.

The numbers don’t lie

Falling profits are hardly indicative of a sector that has been profiteering.

A look at some other financial metrics reported by the grocery multiples bear this out.

Tesco’s operating margin for the year just ended was just 3.8%, down from 4.37% the previous year and well down on the 5% or so that it and rivals – most notably Asda – has targeted historically.

Sainsbury’s has just reported a retail underlying operating margin of just 2.99%, down from 3.4% the previous year.

These are not, repeat not, the kind of figures one would expect to see from businesses that were profiteering. To put them into context, Apple has just reported an operating margin of 30.2%.

Another metric which gives the lie to any notion of profiteering among supermarkets is return on capital employed (ROCE) – a measure of how good a business is at generating a profit from the capital it puts to work.

Sainsbury’s has just reported a ROCE of 7.6% for the year just ended, down from 8.4% the year before, while Tesco’s ROCE has fallen from 7.5% to 6.6% during the last year.

Again, to put those figures into context, the Office for National Statistics reports that the typical rate of return achieved by a private sector company in the UK between July and September last year (the latest quarter for which figures are available) was 9.7%.

These numbers are just not what one would expect to see from a company that was profiteering.

The mistake made by people like Sir Ed and Ms Graham, who believe they have detected profiteering by supermarkets, is probably just to look at how big the headline profit is.

Tesco reported a headline retail operating profit of £2.3bn for the UK and Ireland for the year just ended.

A big number, yes, but – as has been shown above – not when set against sales of £53.3bn. These are huge businesses and with them come huge operating costs.

‘Shoppers are blessed’

As Clive Black, head of consumer research at the investment bank Shore Capital, put it to clients this week: “Tesco UK achieves circa 4% margins due to its scale (27% market share) but also a massive capital outlay in superstores that it would not expend today with current returns. Tesco is not opening any supermarkets, what does that indicate?

“Since the early 1990s, major UK superstore margins have fallen by 30% to 50% … Asda, Iceland, Morrison and Waitrose are largely loss-making to break-even at the profit before tax level.

“In the early 1990s, Sainsbury reported profits before tax of over £800m. We are forecasting less than £700m for the current full year after expending billions on capital expenditure.”

Mr Black, one of the City’s most experienced and highly regarded retail analysts, argues that “evidence of systemic profiteering is largely nonsense”.

He says that, on the contrary, the British public and government are “blessed to have one of the most advanced food systems in the world” which has brought down the proportion of household income spent on food from more than a third immediately after the Second World War to just one tenth now.

“That is a massive benefit of innovation, investment, technological change and entrepreneurship to society and an enhancement of living standards. More to the point, we have an amazing choice of safe product,” he added.

Not only is fierce competition in the grocery sector driving down supermarket profits. It may also be hurting other parts of the food and drink supply chain. Intense competition hurts suppliers of essential products such as milk.

Mr Black points out: “A decade or more ago, four pints of milk cost 155p to 160p. Prior to the pandemic, in 2019, that was 109p, despite rising costs in the interim. Presently, four pints of milk in UK supermarkets has fallen from 165p to 155p.

“The public kept quiet as milk was used, particularly by expanding German discount chains [Aldi and Lidl], as a loss leader, killing category profitability through those years.”

He suggests that government policies, such as regulations on packaging and clampdowns on migrant labour that have pushed up the operating costs of food producers, are – along with Russia’s invasion of Ukraine – among the main factors stoking food price inflation.

‘Stupid statements’

The example he cites is tomatoes. When bad weather hit tomato production in Spain and North Africa recently, leading to shortages, there were gaps on the shelves of some supermarkets in the UK.

Mr Black explains: “The UK government decided not to support domestic glasshouse growers on energy or labour access and so, understandably, said folks emptied their facilities.

“Continental Europe, which tends now to have higher base food prices and elevated food inflation too, did not go short of such products while the UK did. Why? Well, because the intense competitiveness of the British market meant that African and Spanish product followed the money and, with little domestic produce, the availability matter was compounded.

“If anything shows the stupidity of Mr Davey’s supermarket profiteering statements, then tomatoes display all.”

Still unconvinced?

Well, take a look at the company share price charts.

Strip out the impact of share splits or consolidations and shares of Tesco, despite rallying by nearly 18% since the beginning of the year, have been changing hands this week at the same price they were back in November 2000.

Likewise, shares of Sainsbury’s, despite having risen by 27% so far this year, have been trading this week at the level they did back in September 1990. That is despite billions of pounds worth of investment by both in the intervening decades.

Supermarkets profiteering? Some of their long-suffering shareholders would probably be thrilled if they were.

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Post Office scandal: Victims say government’s control of redress schemes should be taken away

Published

5 hours ago

July 7, 2025

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Post Office scandal: Victims say government's control of redress schemes should be taken away

Post Office scandal victims are calling for redress schemes to be taken away from the government completely, ahead of the public inquiry publishing its first findings.

Phase 1, which is due back on Tuesday, will report on the human impact of what happened as well as compensation schemes.

“Take (them) off the government completely,” says Jo Hamilton OBE, a high-profile campaigner and former sub-postmistress, who was convicted of stealing from her branch in 2008.

“It’s like the fox in charge of the hen house,” she adds, “because they were the only shareholders of Post Office“.

“So they’re in it up to their necks… So why should they be in charge of giving us financial redress?”

Jo and others are hoping Sir Wyn Williams, chairman of the public statutory inquiry, will make recommendations for an independent body to take control of redress schemes.

The inquiry has been examining the Post Office scandal which saw more than 700 people wrongfully convicted between 1999 and 2015.

Sub-postmasters were forced to pay back false accounting shortfalls because of the faulty IT system, Horizon.

At the moment, the Department for Business and Trade administers most of the redress schemes including the Horizon Conviction Redress Scheme and the Group Litigation Order (GLO) Scheme.

The Post Office is still responsible for the Horizon Shortfall scheme.

Lee Castleton OBE, another victim of the scandal, was bankrupted in 2007 when he lost his case in the civil courts representing himself against the Post Office.

The civil judgment against him, however, still stands.

“It’s the oddest thing in the world to be an OBE, fighting for justice, while still having the original case standing against me,” he tells Sky News.

While he has received an interim payment he has not applied to a redress scheme.

“The GLO scheme – that’s there on the table for me to do,” he says, “but I know that they would use my original case, still standing against me, in any form of redress.

“So they would still tell me repeatedly that the court found me to be liable and therefore they only acted on the court’s outcome.”

He agrees with other victims who want the inquiry this week to recommend “taking the bad piece out” of redress schemes.

“The bad piece is the company – Post Office Limited,” he continues, “and the government – they need to be outside.

“When somebody goes to court, even if it’s a case against the Department for Business and Trade (DBT), when they go to court DBT do not decide what the outcome is.

“A judge decides, a third party decides, a right-minded individual a fair individual, that’s what needs to happen.”

Mr Castleton is also taking legal action against the Post Office and Fujitsu – the first individual victim to sue the organisations for compensation and “vindication” in court.

“I want to hear why it happened, to hear what I believe to be the truth, to hear what they believe to be the truth and let the judge decide.”

Neil Hudgell, a lawyer for victims, said he expects the first inquiry report this week may be “really rather damning” of the redress claim process describing “inconsistencies”, “bureaucracy” and “delays”.

“The over-lawyeringness of it,” he adds, “the minute analysis, micro-analysis of detail, the inability to give people fully the benefit of doubt.

“All those things I think are going to be part and parcel of what Sir Wynn says about compensation.

“And we would hope, not going to say expect because history’s not great, we would hope it’s a springboard to an acceleration, a meaningful acceleration of that process.”

A Department for Business and Trade spokesperson said they were “grateful” for the inquiry’s work describing “the immeasurable suffering” victims endured.

Their statement continued: “This government has quadrupled the total amount paid to affected postmasters to provide them with full and fair redress, with more than £1bn having now been paid to thousands of claimants.

“We will also continue to work with the Post Office, who have already written to over 24,000 postmasters, to ensure that everyone who may be eligible for redress is given the opportunity to apply for it.”

Business

Digital wallet provider Hyperlayer closes in on £30m funding boost

Published

20 hours ago

July 6, 2025

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Digital wallet provider Hyperlayer closes in on £30m funding boost

A British fintech which counts Standard Life among its key clients is close to finalising one of the industry’s biggest funding rounds so far this year.

Sky News understands that Hyperlayer, which is run by the former Morgan Stanley executive Rob Rooney, is lining up a major equity injection led by CDAM, a UK-based investment firm, and several new institutional investors.

City sources said this weekend that the new capital from CDAM and other backers could total at least £30m.

The funding round is expected to take place at a post-money valuation of about £160m.

Hyperlayer, which operates a consumer-facing digital wallet called Hyperjar, intends to use the new funding as growth capital to finance the development of new partnerships with global banks and asset managers.

The company provides smart account technology on existing client infrastructure, and is said to work with a number of the world’s 10 largest banks – although it has not publicly disclosed their identities.

Its work with Standard Life involves the future launch of a consumer money app aimed at people approaching or in early retirement.

Hyperlayer’s consumer-facing platform sees customers organise their money in what the company calls “digital jam jars”, enabling them to earn rewards which give them access to partner brands such as Asda, Morrisons and Starbucks.

IKEA and the John Lewis Partnership are among the other merchant partners with which Hyperlayer is working to develop distinctive loyalty-based initiatives for its financial institution clients.

Founded in 2006 by Adam Chamberlain and Scott Davies, CDAM has $1.5bn in assets under management and is an experienced investor in financial services technology.

Mr Davies has had a seat on Hyperlayer’s board for several years.

Mr Rooney, who was a prominent Wall Street executive for years, ultimately serving as Morgan Stanley’s technology operations, joined the company as CEO in 2023.

The new capital injection led by CDAM is understood to be subject to approval by Hyperlayer’s shareholders.

Hyperlayer declined to comment on Sunday.

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Octopus Energy sparks £10bn demerger of tech arm Kraken

Published

2 days ago

July 5, 2025

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Octopus Energy sparks £10bn demerger of tech arm Kraken

Octopus Energy Group, Britain’s largest residential gas and electricity supplier, is plotting a £10bn demerger of its technology arm that would reinforce its status as one of the country’s most valuable private companies.

Sky News can exclusively reveal that Octopus Energy is close to hiring investment bankers to help formally separate Kraken Technologies from the rest of the group.

The demerger, which would be expected to take place in the next 12 months, would see Octopus Energy’s existing investors given shares in the newly independent Kraken business.

A minority stake in Kraken of up to 20% is expected to be sold to external shareholders in order to help validate the technology platform’s valuation, according to insiders.

One banking source said that Kraken could be valued at as much as $14bn (£10.25bn) in a forthcoming demerger.

Citi, Goldman Sachs, JP Morgan and Morgan Stanley are among the investment banks invited to pitch for the demerger mandate in recent weeks.

A deal will augment Octopus Energy chief executive Greg Jackson’s paper fortune, and underline his success at building a globally significant British-based company over the last decade.

Octopus Energy now has 7.5m retail customers in Britain, following its 2022 rescue of the collapsed energy supplier Bulb, and the subsequent acquisition of Shell’s home energy business.

In January, it announced that it had become the country’s biggest supplier – surpassing Centrica-owned British Gas – with a 24% market share.

It also has a further 2.5m customers outside the UK.

Sources said a £10bn valuation of Kraken would now imply that the whole group, including the retail supply business, was worth in the region of £15bn or more.

That would be double its valuation of just over a year ago, when the company announced that it had secured new backing from funds Galvanize Climate Solutions and Lightrock.

Shortly before that, former US vice president Al Gore’s firm, Generation Investment Management, and the Canada Pension Plan Investment Board increased their stakes in Octopus Energy in a transaction valuing the company at $9bn (£7.2bn).

Kraken is an operating system which is licensed to other energy providers, water companies and telecoms suppliers.

It connects all parts of the energy system, including customer billing and the flexible management of renewable generation and energy devices such as heat pumps and electric vehicle batteries.

The business also unlocks smart grids which enable people to use more renewable energy when there is an abundant supply of it.

In the UK, its platform is licensed to Octopus Energy’s rivals EON and EDF Energy, as well as the water company Severn Trent and broadband provider Cuckoo.

Overseas, Kraken serves Origin Energy in Australia, Japan’s Tokyo Gas and Plentitude in countries including France and Greece.

Its biggest coup came recently, when it struck a deal with National Grid in the US to serve 6.5m customers in New York and Massachusetts.

Sources said other major licensing agreements in the US were expected to be struck in the coming months.

Kraken, which is chaired by Gavin Patterson, the former BT Group chief executive, is now contracted to more than 70m customer accounts globally – putting it easily on track to hit a target of 100m by 2027.

Earlier this year, Mr Jackson said that target now risked being seen as “embarrassingly unambitious”.

Last July, Kraken recruited Amir Orad, a former boss of NICE Actimize, a US-listed provider of enterprise software to global banks and Fortune 500 companies, as its first chief executive.

A demerger of Kraken will trigger speculation about an eventual public market listing of the business.

Its growth in the US, and the relative public market valuations of technology companies in New York and London, may put the UK at a disadvantage when Kraken eventually considers where to list.

One key advantage of demerging Kraken from the rest of Octopus Energy Group would be to remove the perception of a conflict of interest among potential customers of the technology platform.

A source said the unified corporate ownership of both businesses had acted as a deterrent to some energy suppliers.

Kraken has also diversified beyond the energy sector, and earlier this year joined a consortium which was exploring a takeover bid for stricken Thames Water.

This weekend, Octopus Energy declined to comment.