Has anyone told Sir Ed Davey, or other proponents of the “profiteering supermarkets” point of view, that Tesco’s profits plummeted last year by half?

Davey, the Liberal Democrat leader who has called for a Competition and Markets Authority investigation as food price inflation remains at nosebleed levels, and the big grocers’ other critics didn’t pick up either on the fact that Tesco was not alone. Sainsbury’s, for instance, suffered a precipitous 62% slide in pre-tax earnings.

Supermarkets can’t win. Last week, Tesco chief executive Ken Murphy’s rewards package was condemned on one hand as an alleged fat cat’s cream and on the other as unjustified when profits were in a tailspin. 

Supermarkets, with their scale and perceived power, are a convenient whipping boy as shoppers labour under the burden of the cost-of-living crisis. From Which? to Westminster, they’re in the line of fire.

Parliament’s environment, farming, and rural affairs committee just last week said it would investigate “fairness in food prices and supply”. 

“The existence of food banks amid the cost-of-living crunch is a failure of policy evident across the supply chain”

As fingers are pointed at grocers over prices, the reality could not be further from the truth. ‘The customer comes first’ is a retail cliche because it is true. As one leading grocery executive put it to me last week, describing the tone of internal meetings: “People really care about value for customers.”

The numbers speak for themselves. Margins in food as are thin as a cream cracker at the best of times and were down last year, partly reflecting investment in what Davey and his cohorts want – lower prices.

That has been achieved in a high-cost environment, including the need to pay staff more as they face increased costs themselves. Tesco alone increased pay three times over the course of a year, which is hardly the act of a grasping profiteer keen to pocket every penny it can while consumers struggle to pay bills.

Those bills have climbed because of factors beyond food retailers’ control such as supply chain disruption and commodity and energy price increases. If people think grocers are profiteering, consider that BP this month reported a profit of £4bn in its most recent quarter alone.

While the prices of well-known brands have climbed, grocers have invested in their own brands, value ranges and loyalty programmes. Yes, some of those prices have gone up too, though they remain low in absolute terms, but such initiatives have helped customers minimise the impact of inflation. That should be lauded, not ignored as a convenient profiteering narrative is pursued.

Policy failure

Rightly, claims of profiteering have been debunked by institutions with less of an axe to grind than politicians. Last week, Bank of England governor Andrew Bailey told the BBC: “It actually doesn’t look like that’s going on. Energy is quite a big element in the cost of food production and that’s certainly had an effect in this crisis. Often producers have bought forward [supplies] at high prices because they were concerned about whether they were going to get the things they needed.”

Bailey also said that grocers anticipate food inflation will “come down quite rapidly” as the year progresses.

Even so, it will likely remain a prominent feature of the consumer and business landscape for some time. But grocers are not to blame and the context in which prices have rocketed should not be overlooked.

In a note last week, Shore Capital analyst Clive Black was scathing about the failure of politicians to address weaknesses in the food system. He wrote: “To suggest that UK supermarkets a) rip folks off and b) earn supernormal profits is not only incorrect it is insane”.

He concluded that the present problems “should be an opportunity to look at how the UK can be more secure in its food supply, more productive, more local whilst extolling kindness to creatures, enhancing biodiversity and improving our environment… it is sadly seriously questionable if present ministers and their senior officials can and want to see through such opportunities”.

The existence of food banks, to which grocers deliver unsold products by the pantry-load, amid the cost-of-living crunch is a failure of policy evident across the supply chain. Claims of profiteering conveniently make headlines but avoid confronting the real issues.