The Bank of England has issued a stark warning that supermarkets across the UK could soon implement "dynamic pricing," a strategy that would allow them to increase the cost of goods when demand peaks, mirroring practices used by companies like Amazon, Uber, and in ticket sales for flights or concerts. This shift could make surge pricing a standard feature for even the most essential items, such as food, potentially impacting household budgets significantly.
Rise of Market-Responsive Pricing Tools
According to the Bank, one-in-three companies are now planning to utilise "market-responsive pricing tools," a notable increase from the current one-in-five. Clare Lombardelli, the deputy governor for monetary policy at the Bank, highlighted that digitalisation has dramatically reduced what economists term "menu costs"—the expenses associated with changing listed prices. Historically, this referred to the cost of printing new menus with updated prices, but digital pricing now enables firms to adjust prices frequently at negligible cost.
Supermarkets' Cautious Approach and Digital Transition
So far, supermarkets have remained tight-lipped about their specific pricing plans. While they have not yet adopted surge pricing, many are introducing digital price displays, which facilitate rapid price changes. Ms Lombardelli noted that sectors are experimenting with technologies like electronic shelf labels, already widespread in Europe, which could pave the way for dynamic pricing in the future. For instance, Morrisons has announced plans to install digital displays in all 497 of its supermarkets shortly.
Controversy and Opposition Expected
A move to digital pricing is likely to be highly controversial, attracting strong opposition from MPs and consumer groups, given that food is an essential item unlike concert tickets. Consumers are already anxious about rising fuel costs, which have contributed to inflation for various goods and services, exacerbated by supply disruptions from the Iran war. Defenders of dynamic pricing argue that no one objects when prices fall and that shoppers can protect themselves by choosing when and where to shop. Supermarkets already use a form of dynamic pricing by reducing costs for items nearing their sell-by dates, which aids those on low budgets.
Industry Response and Future Implications
The British Retail Consortium, the industry trade body, stated it has no formal policy on dynamic pricing yet but expects grocers to clarify their plans soon. Clive Black of stockbroker Shore Capital commented to The Times that changing prices traditionally is expensive, citing Tesco's need to replace physical labels across thousands of stores. He suggested that while the initial drive for digital displays is operational efficiency, standardisation, and compliance, the longer-term possibility is dynamic pricing, raising questions about whether it benefits shoppers or shareholders more. Dynamic pricing has been applied in other contexts, such as tickets for the 2026 World Cup, where prices ranged from $60 to nearly $7000.
