Drop in UK shop prices helps boost sales volumes and retain customers

Jessica Paige 28 October 2020 (Last Updated October 28th, 2020 17:42)

Shop prices decreased by 1.2% in October following a 3.2% fall in September, according to new figures from the British Retail Consortium (BRC)-Nielsen Shop Price Index.

Drop in UK shop prices helps boost sales volumes and retain customers
The BRC-Nielsen Shop Price Index also stated that prices for non-food items fell by 2.7%, the lowest drop since the start of the pandemic. Credit: Shutterstock

Shop prices decreased by 1.2% in October following a 3.2% fall in September, according to new figures from the British Retail Consortium (BRC)-Nielsen Shop Price Index.

According to industry experts, the fall is a result of retailers offering lower prices in an attempt to undercut the competition to retain customers, as people are buying less amid the Covid-19 coronavirus pandemic.

The BRC-Nielsen Shop Price Index also stated that prices for non-food items fell by 2.7%, the lowest drop since the start of the pandemic.

Food inflation increased in October but remains low as supermarkets compete to offer the lowest prices. Fresh food prices increased 0.4% in October compared with 0.2% in September, while ambient food prices increased by 2.3%, resulting in overall food price inflation of 1.2%.

Food prices are expected to remain low as tighter Covid-19 related restrictions are implemented across the UK.

BRC and Nielsen responds

BRC chief executive Helen Dickinson said: “Once again, it is good news for consumers, with shop prices falling in October, albeit at a slower pace compared to the previous month.

“As the retail industry began to see sales bounce back, non-food prices saw the shallowest decline since the start of the pandemic.

“However, given the wider economic context, with stricter restrictions and a possible rise in unemployment, we are likely to see continuing discounts in non-food for months to come.

“Meanwhile, food inflation remained low as supermarkets fiercely competed with one another to offer the best quality goods at the lowest prices.”

Nielsen head of retailer and business insight Mike Watkins said: “With pandemic restrictions extended, shopping behaviour has been in a holding pattern as households adjust to new ways of working, living and spending.

“To help sales volumes, non-food retailers are limiting any price increases coming through the supply chain and food retailers are continuing with the lower prices introduced in recent weeks.

“And should the recession and the growth in unemployment have a further impact on consumer spend, we can expect shop price inflation to remain low for the rest of the year.”

Price drop influenced by the golden quarter

Business technology consultancy BJSS retail principal Ralph Robinson told Retail Insight Network that October’s shop price decrease is “not surprising” as the golden quarter approaches.

Robinson said: “The build up to the ‘golden quarter’ is always a strategic opportunity for retailers to turn a bad sales year into a good one. As such, for retailers feeling the pain of 2020, winter price cuts are a simple yet effective way to encourage consumers to get their wallets out in a bid to make up for lost ground. Therefore, it’s not surprising that shop prices fell in October, but it does highlight the growing divide between the prospects for food and non-food retail in the UK.

“Due to the surge in demand during Covid-19, Grocers have the luxury of investing in a pre-Christmas price war against a relatively healthy balance sheet. On the other hand, for many non-food retailers, their sales in the build-up to Christmas could be ‘make or break’, especially with Amazon waiting in the wings and with Brexit and business rates due to hit in the new year.

“Therefore, the fact that this October’s 2.7% price drop is the shallowest since the start of the pandemic either suggests that their appetite for the vicious cycle of heavy seasonal discounts has finally reached their limits, or that they are gearing up for a much bigger last-minute push in the run-up to Christmas.”

UK population concerned over Christmas spending

Although the price drop could be attributed to the golden quarter and the general run-up to Christmas, a recent study by UK-based consumer insights company Toluna has indicated that over half of the UK population are worried about affording Christmas.

Toluna’s ‘Understanding the 2020 Consumer’ global barometer study has found that 52% have concerns over affording Christmas, while 31% are planning to spend less money on gifting due to concerns about the UK’s financial situation, a desire to save money due to uncertainty of the future, and a change in personal finances this year.

However, over a third of consumers are expecting shop prices to drop even further for the Christmas period with more discounts on offer than previous years.

Toluna subsidiary Harris Interactive senior research executive Esther Ward said: “It’s clear that Christmas this year is going to be markedly different and that’s having a big impact on our spending habits.

“Retailers need to tap into this consumer sentiment to deliver the right kind of shopping experience to people.”