london food prices like almost everything else are rising fast there have recently been warnings of apocalyptic costs and a declaration that the era of cheap food is over such announcements have been linked to creaking economies trying to recover from the pandemic and the effects of war in ukraine one of the worlds largest exporters of food but to fully understand why food prices cannot be kept down and what could be done to help struggling households we need to look at how our supermarkets actually make money my research shows that the current system has been balanced on a knife edge for some time advt the fact is that most of the income from selling food with very low margins at very high volumes is swallowed up in overheads such as payroll and the costs of running stores and distribution centres this has three effects on supermarket economics worth considering the next time you stock up on groceries firstly supermarkets only make a decent profit if people buy convenience food treats and nonfood items everything from toilet paper to fuel and clothing seven out of the top ten items that bring in the most money for supermarkets fall into the categories of alcohol snacks and confectionery one influential book on the subject argues supermarkets need to ensure through shop design and promotion that customers buy at least some higher margin items regardless of their intention when they enter the store supermarkets also need to be competitive by offering great deals on cheap bulk longlife foods such as cereals and pasta to provide customers with savings which they may then spend on the nonfood items and higher margin treats if there is generally less money in peoples pockets due to inflation and a costofliving crisis they will be generally less inclined to buy these discretionary and more profitable items making the supermarket less profitable advt from this perspective the recent controversial announcement that multibuy deals are now not being banned in the uk is in fact good news for the retailers food for thought secondly food is cheap in supermarkets because they use their bargaining power to get large volume discounts when tesco was founded in the early 1960s consumers benefited because it challenged the previous situation which had favoured the large manufacturers and processors in setting prices this lowers prices for shoppers but severely impacts earnings for the supermarket and once prices cannot be pushed down any further with cows milk the price paid to producers is mostly at or below the cost of production charging suppliers to market and promote their products is one of the few tools available for a supermarket to make money information about this kind of commercial income can be found in the notes at the back of retailers annual financial reports i have analysed these and found that without commercial income in 2021 very few supermarkets would have made any profit at all but there is a limit