UK corner shops call for state support to offset energy costs

Corner shops have joined the chorus of UK companies urging the government to offer help with energy costs, warning that thousands risk going out of business without it.

The Association of Convenience Stores, whose membership accounts for roughly 70 per cent of Britain’s 48,000 convenience stores, said it was “in all seriousness” forecasting mass closures as the “cost of doing business” mounts.

James Lowman, chief executive of the ACS, last week wrote to chancellor Nadhim Zahawi asking for a £575mn assistance package including a cap on commercial energy costs similar to the one for households.

“Many convenience store retailers, both small and large businesses, are reporting that they are not viable with the increased energy costs they are now facing,” Lowman wrote.

Sector regulator Ofgem on Friday raised the price cap on domestic gas and electricity by 80 per cent, equivalent to £3,539 for an average household. But costs for businesses are not capped, even though their contractual relationships with energy suppliers are similar to those of households.

Energy costs for the convenience store sector are predicted to hit £2.5bn this year, according to the ACS, and will almost certainly rise significantly in 2023.

“Without action to mitigate this we will see villages, housing estates, neighbourhoods and high streets lose their small shops,” it said.

Energy costs are a significant problem for all retailers, but convenience stores are particularly exposed. Their bills are higher relative to sales because of the large proportion of chilled products — notably soft drinks, alcohol and milk — in their stores.

The consumption levels of many outlets is above the threshold which entitles them for the reduced rate of VAT on energy. In addition, they tend to be small family businesses with limited ability to invest in more energy-efficient refrigeration.

Profit margins for convenience stores are thin and average transaction sizes small, which limits their ability to claw back some of the increase in energy costs by raising prices for other products.

Lowman noted that energy tariffs were rising from a typical level of 20-25p per KWH to 70-80p per KWH or more, with the smallest stores facing annual bills of up to £44,000 even before the latest increases take effect.

Their predicament mirrors that of frozen food supermarket chain Iceland, which recently told investors that spiralling energy costs and the squeeze on household spending power would sharply reduce profits this year.

“A price cap for small businesses in line with domestic customers would limit these unsustainable cost increases,” said Lowman, suggesting that eligibility could be determined using Ofgem’s existing criteria for microbusinesses.

Companies must have fewer than 10 employees, annual turnover of less than €2mn or annual electricity consumption of less than 100,000 kWh in order to qualify as microbusinesses.

The ACS called for the existing 50 per cent reduction in business rates for small retail and hospitality businesses — a measure implemented in response to the Covid-19 pandemic — to be increased to 100 per cent for the remainder of this tax year.

It also wants next year’s inflationary uplift in rates to be cancelled. The uplift is normally based on consumer price inflation in the previous September, which economists forecast at around 10 per cent.

The Treasury said it understood that people were struggling with rising prices. “While we can’t shield everyone from the global challenges we face, we’re supporting British businesses to navigate the months ahead,” it added, citing cuts in fuel duty and existing measures on business rates.