In the current inflationary period, retailers tread a delicate balance between passing on higher costs on consumers and staying competitive with other retailers.
Sainsbury's is a great example:
On one hand, it faces an investor vote on workers pay amid cost of living crisis. On the other end, Sainsbury's is making more products cheaper in a price war with Aldi.
Perhaps they are confident investors will reject the proposals in the upcoming living wage vote? Or they could also be offsetting any wage hikes for its lower paid/minimum workers cutting costs elsewhere e.g. outsourcing higher paid roles in commercial/finance/ operations & people services/HR as it looks to cut costs and plough money back into keeping prices low.
Sainsbury isn’t the only UK Supermarket looking at wage hikes. We’ve picked stories of other supermarkets including Tesco, Lidl, Asda, Aldi and Morrisons also looking at Pay Rises amidst the planned railway strikes;
- US retailers face shake-up as consumers trade down to beat rising prices
- With the rising prices and unreliable supply chains, customers are aggresively starting to buy supermarket's own private label brands.
- 20 June: Tesco, Aldi and Sainsbury's: Rail strikes could mean supply chain chaos for already strained supermarkets
- 'Planned railway strikes across the UK could cause further disruption to already squeezed supply chains for retail stores and supermarkets. With food and other essential items in stores already up considerably from the same time last year due to increasing labour, energy, and transportation costs, further dents to the supply chain could cause even more price increases.'
- 13 June: Tesco, Asda and Aldi wages as Morrisons announce pay increase
- 11 June: Morrisons to give thousands of workers a pay rise
- 6 June: Tesco Ireland announced 10% pay hike for employees
- 25 Apr: Asda staff secure pay rise after strike threats with workers to get £10.10 an hour
- 22 Apr: British supermarkets battle rising wages as pandemic resets market
- +10 June: Tesco increases pay to dairy suppliers to support sector, this could pass through into consumer pricing.
What do these pay rises mean for companies' abilities to pass on high costs to consumers and their gross margins?
'10% minimum wage hike translates into a 0.36% increase in the prices of grocery products.’ Source
This means depending if the wage rise proposals are approved by investors multiple scenarios could pan out;
- Sainsbury's may look to offset these margins elsewhere by axing certain operations in favor of outsourcing more - however there is an upper limit to this.
- Sainsbury's may struggle driving their prices lower to be competitive, and pass these costs through to consumers if they have to pay higher wages to their workers (including contractors).
- Considering the early indicators of industry-wide changes in customer behaviour amid the cost of living crisis with rising inflation and slumping consumer demand (e.g. basket sizes shrinking with more frequent store visits, customers trading down in products like pasta and bread), Sainsbury's may also see a drop in UK supermarket sales similarly to its competitor Tesco.
- With the rising prices, Sainsbury's customers may also start to purchase more of Sainsbury's own, cheaper private label brands, similarly to what's happening in the US.
- We may see industry wide further price hikes, accelerating already high inflation, further spiraling the cost of living crisis in the UK, which has implications on many other industries.