Greedflation? There’s no evidence supermarkets are profiteering – and this is why
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.
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How much more do shoppers pay?
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.
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Mum’s anguish over stealing baby formula
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%.
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‘Reaching the peak’ of food inflation
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.
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Hunt: ‘Large rise in food inflation’
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.
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‘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.
The daughter of a Post Office victim has told Sky News she suffered “dark thoughts of suicide” in the years after her mother was accused of stealing.
Kate Burrows was 14 years old when her mother, Elaine Hood, was prosecuted and subsequently convicted in 2003.
The first public inquiry report on the Post Office – examining redress and the “human impact” of the scandal – is due to be published today.
“I’ve suffered with panic attacks from about 14, 15 years old, and I still have them to this day,” Kate said.
“I’ve been in and out of therapy for what feels like most of my adult life and it absolutely categorically goes back to [what happened].”
Kate and Rebecca with their mother, Elaine
Kate, along with others, helped set up the charity Lost Chances, supporting the children of Post Office victims. She hopes the inquiry will recognise their suffering.
“It’s important that our voices are heard,” she said. “Not only within the report, but in law actually.
“And then maybe that would be a deterrent for any future cover-ups, that it’s not just the one person it’s the whole family [affected].”
Her sister, Rebecca Richards, who was 18 when their mother was accused, described how an eating disorder “escalated” after what happened.
“When my mum was going through everything, my only control of that situation was what food I put in my body,” she said.
Elaine with her husband
She also said that seeing her mother at court when she was convicted, would “stay with me forever”.
“The two investigators were sat in front of my dad and I, sniggering and saying ‘we’ve got this one’.
“To watch my mum in the docks handcuffed to a guard… not knowing if she was going to be coming home… that is the most standout memory for me.”
The sisters are hoping the inquiry findings will push Fujitsu into fulfilling a promise they made nearly a year ago – to try and help the children of victims.
The siblings were teenagers when their mum was unfairly prosecuted
Last summer, Kate met with the European boss of the company, Paul Patterson, who said he would look at ways they could support Lost Chances.
Despite appearing at the inquiry in November last year and saying he would not “stay silent” on the issue, Kate said there has been little movement in terms of support.
“It’s very much a line of ‘we’re going to wait until the end of the inquiry report to decide’,” she said.
“But Mr Patterson met us in person, looked us in the eye, and we shared the most deeply personal stories and he said we will do something… they need to make a difference.”
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Fujitsu, who developed the faulty Horizon software, has said it is in discussions with the government regarding a contribution to compensation.
The inquiry will delve in detail into redress schemes, of which four exist, three controlled by the government and one by the Post Office.
Victims of the scandal say they are hoping Sir Wyn Williams, chair of the inquiry, will recommend that the government and the Post Office are removed from the redress schemes as thousands still wait for full and fair redress.
A Department for Business and Trade spokesperson said they were “grateful” for the inquiry’s work, describing “the immeasurable suffering” victims endured and saying the government has “quadrupled the total amount paid to affected postmasters”, with more than £1bn having now been paid to thousands of claimants.
Anyone feeling emotionally distressed or suicidal can call Samaritans for help on 116 123 or email jo@samaritans.org in the UK. In the US, call the Samaritans branch in your area or 1 (800) 273-TALK
Donald Trump has warned that all goods from Japan and South Korea will face tariffs of 25% from 1 August.
The announcement, via his Truth Social platform, marks the restart of the threatened “liberation day” escalation that was paused in April, for 90 days, to allow for negotiations to take place with all US trading partners.
The president showed off copies of letters to the leaders of both Japan and South Korea informing them of the tariff rates. Those duties will come on top of sector-specific tariffs – such as 50% rates covering steel – already in force.
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He warned the rates could be adjusted “upward or downward, depending on our relationship with your country”.
Country-specific tariffs had been due to take effect from Wednesday this week but Mr Trump had earlier revealed that nations would start to get letters instead, setting out the US position.
Duties would take effect from 1 August, without any subsequent deal being agreed, it was announced.
The letters sent to Japan and South Korea cited persistent trade imbalances for the rates and included the sentence: “We invite you to participate in the extraordinary Economy of the United States, the Number One Market in the World, by far.”
He ended both letters by saying, “Thank you for your attention to this matter!”
The European Union – the biggest single US trading partner – is among those set to get a letter in the coming days.
Mr Trump has also threatened an additional 10% tariff on any country aligning itself with the “anti-American policies” of BRICS nations – those are Brazil, Russia, India, China and South Africa and whose members also include Egypt, Ethiopia, Indonesia, Iran and the United Arab Emirates.
The UK, bar a massive shock U-turn, should be exempt.
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What does the UK-US trade deal involve?
The country was the first to be granted a trade deal, of sorts, in May and the Trump administration has claimed many others had been offering concessions since the clock ticked down to 9 July.
The UK is not expected to face any changes to its current 10% rate due to the trade truce, which came into effect last week.
While UK-made cars aerospace products face no duties under a new quota arrangement, it still remains to be seen whether 25% tariffs on UK-produced steel and aluminium will be cancelled.
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Can the UK avoid steel tariffs?
They could, conceivably, even be raised to 50%, as is currently the case for America’s other trading partners, because no agreement on eliminating the rate was reached when the government struck its deal in May.
It all amounts to more uncertainty for the UK steel sector.
A No 10 spokesman said on Monday: “Our work with the US continues to get this deal implemented as soon as possible.
“That will remove the 25% tariff on UK steel and aluminium, making us the only country in the world to have tariffs removed on these products.
“The US agreed to remove tariffs on these products as part of our agreement on 8 May. It reiterated that again at the G7 last month. The discussions continue, and will continue to do so.”
China and Vietnam have also secured some US concessions.
The dollar strengthened but US stock markets lost ground in the wake of the letters to Japan and South Korea being made public, with the broad-based S&P 500 down by 1%.
Stock markets in both Japan and South Korea were closed for the day but US-traded shares of SK Telecom and LG Display were down 7.5% and 5.8% respectively.
Shares in Elon Musk’s Tesla have reversed sharply over renewed concerns about his focus on the company’s recovery as he plots against Donald Trump.
Shares in the electric car firm plunged by more than 7% at the start of trading on Wall Street – taking about $71bn (£52bn) off its market value.
The stock has often come under pressure since Musk started his association with the president, latterly helping bring down federal government costs through a new department known as DOGE (Department of Government Efficiency).
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But it is now suffering as their political relationship has soured.
Musk has publicly opposed the so-called “big, beautiful bill” – Mr Trump’s flagship tax cut and spending plans that received Congressional approval last week – since he left his DOGE role.
Musk wrote in a post on his X platform on 30 June: “It is obvious with the insane spending of this bill, which increases the debt ceiling by a record FIVE TRILLION DOLLARS that we live in a one-party country – the PORKY PIG PARTY!!”
Once the bill was passed, he created a poll on X, asking people if they would want him to launch the America Party.
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He wrote on 4 July: “Independence Day is the perfect time to ask if you want independence from the two-party (some would say uniparty) system!”
The vote ended with 65.4% in favour of creating the party.
The formation of the America Party was announced the following day.
“By a factor of 2 to 1, you want a new political party and you shall have it! When it comes to bankrupting our country with
waste & graft, we live in a one-party system, not a democracy.”
“Today, the America Party is formed to give you back your freedom,” Musk posted.
Trump responded on his Truth Social account: “I am saddened to watch Elon Musk go completely ‘off the rails,’ essentially becoming a TRAIN WRECK over the past five weeks.
“He even wants to start a Third Political Party, despite the fact that they have never succeeded in the United States –
The System seems not designed for them.”
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Trump threatens to ‘put DOGE’ on Musk
Trump has previously threatened to go after Tesla‘s government subsidies and contracts through the DOGE department to save “big” as their relationship deteriorated.
Such threats have also pressured the share price at Tesla.
It has suffered throughout Trump 2.0 and, in fact, has trended lower since last December – shortly after Mr Trump’s election win was confirmed.
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The possibility of tariff hits to the business, followed by actual tariff disruption, along with a consumer and investor backlash against Musk’s previous DOGE role have contributed to a 35% decline on the December peak.
The very absence of Tesla’s CEO dragged on the shares.
Tesla sales suffered globally as the trade war ramped up due to the imposition of tariffs by a government he supported, until the public row between him and the president began in early June.
Musk had only just renewed his 100% focus on Tesla and his other business interests by that time.
Tesla sales were down during the presidential election campaign last year and continued to decline, on a quarterly basis, during the first half of 2025.
Neil Wilson, UK investor strategist at Saxo Markets, said of the company’s share price woes: “Investors are worried about two things – one is more Trump ire affecting subsidies and the other more importantly is a distracted Musk.
“Investors had cheered Musk stepping back from frontline politics but are now worried he’s going to sucked back in and take his eye off Tesla.”
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