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UK shop prices hit a two-year high: the Q4 margin plan for small businesses

Shop price inflation reached 1.5% in August, its highest in over two years. Here is what the figures mean for your margin, and what to do before the Q4 season.

Reading time 5 min read

Category Business guides

Written by The bizbritain team

Shop prices are rising again. According to the British Retail Consortium, shop price inflation reached 1.5% in August. That is the highest reading in over two years. If you sell food or drink, your buying prices have already moved. This guide explains what the figures mean for your margin, and what you can do about it this quarter.

Section 01

What the BRC figures actually say

The British Retail Consortium and NielsenIQ publish a monthly shop price index. It measures what shops charge their customers.

According to the BRC, shop price inflation was 1.5% in the year to August. In July it was 0.9%. Food did most of the work. Food inflation rose to 2.8%, up from 2.2% in July.

The categories underneath are the ones that affect your buying. Fresh food inflation was 3%. Ambient food was 2.5%. Ambient food means tinned, dried and packaged goods. Non-food inflation was 0.9%, up from 0.2% in July.

1.5%shop price inflation in the year to August, a two-year high

2.8%food inflation, up from 2.2% in July

2.5%ambient food inflation, covering tinned, dried and packaged goods

0.9%non-food inflation, up from 0.2% in July

Helen Dickinson, chief executive of the BRC, said shop price inflation had risen to its highest level in over two years. She added that it remains well below the headline Consumer Price Index.

Section 02

Why this reaches your margin before it reaches your till

The index measures shop prices. Your buying prices move first.

So 2.8% is not your cost increase. It is the share that has already been passed on to customers. Most independent operators absorb part of a rise before they pass any of it on.

That gap is your gross margin, and it narrows quietly. Owners often spot it in the quarterly accounts. By then the quarter has gone.

Q4 is when this bites hardest. You buy more stock. You hold it for longer. You often agree prices before you know what will sell.

Section 03

Three ways to protect your gross margin

Reprice line by line, not across the board
Go through your menu or product list one item at a time. Find the lines where a small rise will not cost you a sale. A 20p rise on something you sell all day usually beats a £1 rise on something you sell twice a week.
Renegotiate your three biggest supply lines
Trying to renegotiate everything at once rarely works. Pick the three suppliers who take the most of your money. Ask for a fixed price for a set period rather than a discount. Certainty is often easier for a supplier to give than a lower price, and it makes your own forecasting simpler.
Replace the equipment that costs you every week
An old fridge, oven or fryer costs you in energy and in waste. Work out what a replacement would save each month. If it pays for itself inside 18 months, it is a cost decision rather than a purchase.

Section 04

How to fund a fix that pays for itself

There is a difference between borrowing to cover a gap and borrowing to close one.

Covering a gap means funding stock you will sell, or bridging a slow month. That is working capital, and it is usually short term.

Closing a gap means buying something that lowers your costs for good. Equipment is the common example. Asset finance spreads the cost over the life of the kit, so the repayment sits against the saving it produces.

Both are ordinary requests. Lenders want the same things either way. They want your recent trading figures, a clear reason for the amount, and a repayment your business can carry.

If your bank has already said no, that is not the end of it. The high street banks apply a narrow set of criteria. A broker can put the same deal in front of a much wider range of lenders. We help you work out which product fits, then take it to the lenders most likely to say yes.

This guide is general information, not financial advice. Applications are subject to status, affordability and lender criteria.

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