Don't worry, David Cameron: there's no such thing as the price of bread

http://www.theguardian.com/commentisfree/2013/oct/01/dont-worry-david-cameron-price-bread

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I hate to say this, because it is always fun to enjoy the discomfiture of politicians, but it is not just the prime minster who does not know the price of bread. Nor is it just Boris Johnson who cannot quote the price of milk. Most of us don't know, because there is no such thing as the price of bread any more.

The discount white-sliced factory loaf David Cameron was quizzed about on London radio station LBC has long been used as a weapon in supermarket wars. Bread prices yo-yo – they might be half price this week, double the next, and somewhere in between the week after.

For many years bread has been used as a loss leader and sold below the cost of production as a way of bringing customers in to stores. Once they have won business from rivals with promotions on "known-value items", supermarkets can cross-subsidise their loss by extracting profits in higher margins on those occasional purchases whose price we do not know. We are hardly going to dash off, mid-shop, to check whether all our other shopping is cheaper somewhere else.

As long ago as 2000, a Competition Commission inquiry found that the practice of loss-leading was anti-competitive, but didn't make any recommendation to stop it. It is banned in several other countries, and is one of the things that has driven specialist independent shops such as bakers and butchers out of business.

The cheapest bread is nearly always an own-label loaf, which also gives the supermarkets more bargaining power over their suppliers since it undermines the manufacturers' brands by making them appear to be bad value.

Milk has also been used as a loss leader, and periods of forcing the price below the cost of production have clobbered the UK dairy industry. So many farmers have given up in recent years that supermarkets are now in the absurd position of having to import some of their fresh milk to meet demand.

Rapidly changing prices on hundreds of products do not help consumers but instead confuse them. And what they give with one hand, supermarkets can take back, or have already taken back, with the other. In the lead-up to Christmas 2010, Asda cut nearly 800 prices but also increased 850 prices; Tesco cut 930 prices but increased just under 1,000. With so much volatility it is impossible for the average shopper to work out where best value really is. Meanwhile, small shops find it hard to know what they have to compete with when prices are destabilised like this.

We appear to have been bamboozled by this clever piece of retail psychology, however. Prof Paul Dobson of Norwich Business School, who has studied supermarket pricing for more than 10 years, reckons that more than 40% of what we buy in supermarkets is on special offer. He also calculates that the most common price cut among the big four supermarkets over a period of five years has been 1p. Cutting thousands of prices by tiny amounts, or making prices yo-yo, has been used to mask serious price increases on a smaller number of lines – with a big net effect on bills.

In the seriously inflationary period of 2008 there were two-and-a-half times the number of price cuts as price rises in the leading supermarkets, but prices overall were rising rapidly. We all know this instinctively. Our weekly shop is much more expensive than it was at the beginning of the recession. But our till receipts tell us we have "saved" lots of money on discounted goods. We put things in to our basket we did not set out to buy because we fall for the offer.

By not knowing what things cost, Boris and Dave are indeed everyman. That is not to say the issue is not toxic for them, because the people who do know the price of everything, even as it changes by the day, are those on the lowest incomes, counting every penny as wages stagnate and food inflation runs ahead of overall inflation. They have no choice but to buy the "value" loaf.

That matters because deep discounting has driven a race to the bottom. Most promotions are skewed to the least healthy foods – as Dobson has also shown – to those high in salt, fat and sugar, and stripped of the nutrients available in more expensive whole foods. Those on the lowest incomes eat the poorest quality foods and suffer disproportionately from diet-related diseases. They are being cheated, and they know it.

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