Real Inflation, I think it is happening.

[scotview]

Hi, not sure that this is the proper place to post this. Please move as appropriate.

During lockdown and up to now we have being ordering groceries on line, generally split between Asda and Tesco.

We haven't ordered groceries for a couple of weeks and today we placed an order with Asda. The order was fairly normal but our feeling was that the underlying cost had gone up about 30%. The choice of product had gone down significantly and was strongly biased towards Asda's produce.

We placed an alternative order with Tesco and the apparent cost increase also seemed to be significant. Tesco did offer a wider range of product choice.

Has anyone seen an APPARENT increase in grocery costs in the last fortnight (real inflation). Sorry for not posting hard numbers, just hoping to get some real food inflation feedback.

Thanks in advance.

Scotview

[Lootman]

Yes, supermarkets have pricing power right now. And given the extra staffing needs because of hygiene requirements, not to mention supply chain constraints, it makes sense that prices will go up.

Also, fewer people are going to the shops and instead ordering online, which drives up costs. One of my kids, who is furoughed, is making it up with night shifts at Sainsburys, fulfilling and packing deliveries. That all has to be paid for.

[Alaric]

Has anyone seen an APPARENT increase in grocery costs in the last fortnight (real inflation). Sorry for not posting hard numbers, just hoping to get some real food inflation feedback.

The price of a single pint of milk was 45p not so long ago. Just before the lockdown it was 50p and disappeared from many stores during lockdown. Where it's back, it's now 55p.

[Watis]

Has anyone seen an APPARENT increase in grocery costs in the last fortnight (real inflation). Sorry for not posting hard numbers, just hoping to get some real food inflation feedback.

The price of a single pint of milk was 45p not so long ago. Just before the lockdown it was 50p and disappeared from many stores during lockdown. Where it's back, it's now 55p.

Interesting, because the cost of a 4 pint bottle of milk remains at £1.09 wherever I go.

Otherwise, costs do seem to have increased a bit but I put this down to there being fewer offers, whether discounts or BOGOFs.

Watis

[Mike4]

Yes, supermarkets have pricing power right now. And given the extra staffing needs because of hygiene requirements, not to mention supply chain constraints, it makes sense that prices will go up.

Also, fewer people are going to the shops and instead ordering online, which drives up costs. One of my kids, who is furoughed, is making it up with night shifts at Sainsburys, fulfilling and packing deliveries. That all has to be paid for.

Which it is, separately.

My Tesco order IIRC has a £4.50 'basket charge' and £6.50 delivery charge added to the shelf price I pay for the goods themselves.

[odysseus2000]

Yes, supermarkets have pricing power right now. And given the extra staffing needs because of hygiene requirements, not to mention supply chain constraints, it makes sense that prices will go up.

Also, fewer people are going to the shops and instead ordering online, which drives up costs. One of my kids, who is furoughed, is making it up with night shifts at Sainsburys, fulfilling and packing deliveries. That all has to be paid for.

Which it is, separately.

My Tesco order IIRC has a £4.50 'basket charge' and £6.50 delivery charge added to the shelf price I pay for the goods themselves.

Investors are not bidding up supermarket stocks, with e.g. Sainsburys well off its 2019 highs:

https://twitter.com/0_ody/status/129310 ... 92705?s=20

I currently see little investor interest in defensive stocks. That can of course change, but for now growth still trumps defence for investors in UK equities from my studies.

Regards,

[dealtn]

Yes, supermarkets have pricing power right now. And given the extra staffing needs because of hygiene requirements, not to mention supply chain constraints, it makes sense that prices will go up.

Also, fewer people are going to the shops and instead ordering online, which drives up costs. One of my kids, who is furoughed, is making it up with night shifts at Sainsburys, fulfilling and packing deliveries. That all has to be paid for.

Which it is, separately.

My Tesco order IIRC has a £4.50 'basket charge' and £6.50 delivery charge added to the shelf price I pay for the goods themselves.

Investors are not bidding up supermarket stocks, with e.g. Sainsburys well off its 2019 highs:

https://twitter.com/0_ody/status/129310 ... 92705?s=20

I currently see little investor interest in defensive stocks. That can of course change, but for now growth still trumps defence for investors in UK equities from my studies.

Regards,

That's exactly the point though surely. Companies that have increased costs, and struggle to either become more efficient, or pass that fully on to customers, will be under margin pressure. Unlikely to be successful companies, at least in the short term. Would you disagree and expect to see "bidding up"?

[odysseus2000]

dealtn
That's exactly the point though surely. Companies that have increased costs, and struggle to either become more efficient, or pass that fully on to customers, will be under margin pressure. Unlikely to be successful companies, at least in the short term. Would you disagree and expect to see "bidding up"?

Yes, this is true, but the supermarkets and such are also defensive and have as a whole pricing pressure as seen by earlier comments. Unless there is massive loss of life, we will need food, cleaning fluids etc, but investors are currently not prepared to bid up what are very likely sources of stable, probably slightly increasing, dividends.

Investor interest has currently remained with secular growth business. It is true that the Dow has for the last two days out performed the Nasdaq, but whereas supermarkets such as Tesco are still about 10% off their highs, secular growth business like for example Apple are near all time highs.

One can argue that Apple, Zoom et al now supply necessary products for the Covid economy, but they are still no where near as essential and defensive as are the supermarkets, but they do have much superior earnings growth and that is where investors have been focused.

There are schools of thought that say secular growth is in a 2000 like bubble and that in the by and by investors will dump them in favour of defensives as they did in 2000.

However, the great difference between now and 20 years ago is that many of the secular growth business are now paying dividends with e.g. Apple yield about 0.7%. Tesco by contrast pay over 4% following their recent hike.

Investors however currently prefer the mix of dividend (or none for many secular growth business) and price appreciation to the larger dividends of defensive stuff, but with much lower growth.

Regards,

[dealtn]

dealtn
That's exactly the point though surely. Companies that have increased costs, and struggle to either become more efficient, or pass that fully on to customers, will be under margin pressure. Unlikely to be successful companies, at least in the short term. Would you disagree and expect to see "bidding up"?

Yes, this is true, but the supermarkets and such are also defensive and have as a whole pricing pressure as seen by earlier comments. Unless there is massive loss of life, we will need food, cleaning fluids etc, but investors are currently not prepared to bid up what are very likely sources of stable, probably slightly increasing, dividends.

I just don't see how they will be a "very likely source of stable, probably slightly increasing, dividends". Perhaps you can explain why that is your thinking please? For me they are low margin businesses and are now having to provide their product/service with significantly higher costs. Plenty of staff are now on doors, enforcing one-way systems etc, rather than in "profitable" roles. Online shopping has higher costs as staff do the selecting/packing/delivering that aren't being recouped by delivery charges etc.

[odysseus2000]

dealtn
That's exactly the point though surely. Companies that have increased costs, and struggle to either become more efficient, or pass that fully on to customers, will be under margin pressure. Unlikely to be successful companies, at least in the short term. Would you disagree and expect to see "bidding up"?

Yes, this is true, but the supermarkets and such are also defensive and have as a whole pricing pressure as seen by earlier comments. Unless there is massive loss of life, we will need food, cleaning fluids etc, but investors are currently not prepared to bid up what are very likely sources of stable, probably slightly increasing, dividends.

I just don't see how they will be a "very likely source of stable, probably slightly increasing, dividends". Perhaps you can explain why that is your thinking please? For me they are low margin businesses and are now having to provide their product/service with significantly higher costs. Plenty of staff are now on doors, enforcing one-way systems etc, rather than in "profitable" roles. Online shopping has higher costs as staff do the selecting/packing/delivering that aren't being recouped by delivery charges etc.

Supermarkets are a collective cartel, allowed by the politicians to pass on extra costs because if the politicians don't allow the price increases, supermarkets start cutting branches, services etc and blaming the politicians, who are endless fretful of upsetting their voters.

There is some potential for the discounters like Aldi and Lidl to keep their costs lower, but they do not carry all the range of goods that the legacy stores have and only address a part of the market. Although Aldi et al are a pain for legacy supermarkets, legacy have learned to live with them and have introduced some of their own variants of the Aldi/Lidl model with varying success. In general the big established brands are all very similar and it is hard for one brand do out do the rest. There have been varying international expansion adventures, but these have not in general gone well and many have been withdrawn to leave the core defensive business that trot on paying out reasonably reliable dividends.

Regards,

[dealtn]

Yes, this is true, but the supermarkets and such are also defensive and have as a whole pricing pressure as seen by earlier comments. Unless there is massive loss of life, we will need food, cleaning fluids etc, but investors are currently not prepared to bid up what are very likely sources of stable, probably slightly increasing, dividends.

I just don't see how they will be a "very likely source of stable, probably slightly increasing, dividends". Perhaps you can explain why that is your thinking please? For me they are low margin businesses and are now having to provide their product/service with significantly higher costs. Plenty of staff are now on doors, enforcing one-way systems etc, rather than in "profitable" roles. Online shopping has higher costs as staff do the selecting/packing/delivering that aren't being recouped by delivery charges etc.

Supermarkets are a collective cartel, allowed by the politicians to pass on extra costs because if the politicians don't allow the price increases, supermarkets start cutting branches, services etc and blaming the politicians, who are endless fretful of upsetting their voters.

There is some potential for the discounters like Aldi and Lidl to keep their costs lower, but they do not carry all the range of goods that the legacy stores have and only address a part of the market. Although Aldi et al are a pain for legacy supermarkets, legacy have learned to live with them and have introduced some of their own variants of the Aldi/Lidl model with varying success. In general the big established brands are all very similar and it is hard for one brand do out do the rest. There have been varying international expansion adventures, but these have not in general gone well and many have been withdrawn to leave the core defensive business that trot on paying out reasonably reliable dividends.

Regards,

I disagree with most of what you claim, but frankly it is tedious engaging with you, so others can make their own mind up and continue, as I exit, should they choose.

I guess here are the more relevant pieces of evidence.

5 year Dividend records (2016 - 2020)

Tesco 0p 0p 3p 5.77p 9.15p
Sainsbury 12.1p 10.2p 10.2p 11p 3.3p
Morrison 5p 5.43p 10.09p 12.6p 8.77p

Not sure how that measures up as reasonably reliable, but up to others to decide for themselves.

[supremetwo]

The inflation in prices of goods is insignificant for many elderly compared to the massively-reduced income obtainable from their savings due to low interest rates.

An over 75 needs £15,750 in a 1% account (and those are becoming increasingly rare) just to pay a TV licence.

[UncleEbenezer]

The inflation in prices of goods is insignificant for many elderly compared to the massively-reduced income obtainable from their savings due to low interest rates.

An over 75 needs £15,750 in a 1% account (and those are becoming increasingly rare) just to pay a TV licence.

An over-75[1] is in the happy situation of having not just the state pension, but also the benefit of decent annuity rates. That £15,750 was once worth something.

[1] Along with, to an extent, everyone else born before the pension-age guillotine of April 1960.