Sainsbury's has added its voice to that of fellow retailer Marks & Spencer and others with warnings of potentially higher prices next year as it absorbs the wage and tax increases from last week's Budget.
Speaking after the grocery chain posted a 4.7% increase first half profits, Sainsbury's chief executive Simon Roberts said the hike in employers' National Insurance (NI) contributions will cost the group £140 million next year. That sum does not include increases to the minimum wage.
Chancellor Rachel Reeves announced last week that she plans to increase employers’ NI contributions by 1.2 percentage points to 15% from April, while the minimum wage will rise by 6.7% to £12.21 an hour. For workers aged 18 to 20, the minimum wage will go up by 16% to £10 per hour.
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Along with a reduction to the NI threshold, the changes are set to raise £20 billion a year, making the package one of the biggest single tax-raising measures in history.
“This industry operates on very low margins, and there just isn’t the capacity in the structure of the way the supermarket industry works to absorb these levels of costs without some impacts on inflation," Mr Roberts said.
“I think given the speed these costs are coming at, they will be inflationary. We’ll do everything we can to mitigate that impact but there will be inflationary impacts, because our costs are going up.”
His comments came just a day after M&S said that it couldn't rule out the possibility of price increases resulting from the Budget. BT has also hinted at price increases, while pub group Wetherspoons has said "all hospitality businesses" will have to raise charges to customers.
Sainsbury's made a pre-tax profit of £356m during the six months to mid-September, with grocery sales up by 5% during the period.
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This was driven by changes in consumer behaviour, with the return of customers to the office leading to more people carrying out one large shop each week. Mr Roberts said the group also benefitted from shoppers opting to dine in for special occasions, rather than going out to restaurants.
Sales at Argos were down 5% on the same period a year earlier, while merchandise and clothing fell 1.5%. Lower wholesale fuel prices caused forecourt sales to fall 4.4%.
Total sales in the first half came in at £16.3bn, while the group maintained its outlook for full-year profits of about £1bn.
Shares in Sainsbury's closed yesterday's trading 11p lower at 256.8p.
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