UK supermarket sales slow as prices rise, Morrisons swims against tide
Resurgent Morrisons was the only one of the big four supermarkets to grow sales over the past 12 weeks, as the industry's growth slowed but shop price inflation continue to accelerate.
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Overall the UK grocery market saw sales growth slow to 1.4%, research from Kantar Worldpanel showed on Tuesday, down from 2.3% a month ago and 1.7% before that.
Rival research from Nielsen also on Tuesday highlighted that in the last four weeks of the period, the industry's sales fell 2.6%, showing how the later timing of Easter in 2017 has negatively hit comparative sales.
Supermarket price inflation showed no signs of abating, with Kantar finding shop prices for goods up by 2.3% over the last year, adding an extra £21.31 onto the cost of the average household's basket of shopping in the past 12 weeks.
With inflation widely expected to continue to accelerate, Fraser McKevitt, Kantar's head of retail and consumer insight, said it was likely that consumers would continue looking for cheaper alternatives.
"A reduction in promotional activity means the proportion of spending on promotions now stands at just 32.9% – 5.5 percentage points lower than last year."
As a result, he said in-shop offers were becoming a less significant option for shoppers looking to save money.
He added: "Already taking market share from their branded rivals – and up nearly 5% during the past 12 weeks – own label lines could be among the main beneficiaries of inflationary pressure.”
For its part Nielsen, found that spending on promotional items in UK supermarkets during the last four weeks plummeted to its lowest level since 2006, with just over a quarter of consumer spending at UK supermarkets going on products with temporary price cuts or multi-buy offers.
Mike Watkins, Nielsen’s UK head of retailer and business insight, predicted supermarket growth in future months will come from exploiting the 'little and often' shopping trend, more product innovation including private label and food-to-go, as well as maximising sales during seasonal events such as Easter.
Big players struggled to grow
Looking at the performance of the biggest of the sector's players, Tesco broke a run of six consecutive periods of sales growth as sales declined 0.4% overall to drag its market share down 0.5 percentage points to 27.6%.
Sales at Sainsbury's fell 0.7% and its market share by 0.3 percentage points to 16.1%.
Asda's slide continued, with sales slipping 1.8% and its share of the sector till roll shrinking to 15.7% from 16.2%.
For the third month in a row, Morrisons outdid its larger rivals, with sales rising 0.3% during the 12 weeks but its market share shrinking like the rest of its 'big four' peers.
This was due to the unrelenting march of German discounters Lidl and Aldi, which both reached new record high market shares and collectively now account for 11.7% of the grocery market.
Lidl grew sales 15.0% to swell its share of the market by 0.5 percentage points to 4.9%, while Aldi grew sales 14.3% and took its share to 6.8%.
Thanks to their store opening programmes the dynamic duo together attracted an additional 1.1m shoppers over the past three months to snap ever closer to the heels of their larger rivals.
In the premium section of the market, Marks & Spencer also gained market share, with 12-week sales from Nielsen
suggesting 2.6% sales growth, driven by new store openings.
Waitrose, as its space exploration wanes gave up 10 basis points of market share to 4.3%, according to Nielsen, with sales down 0.7% over the 12 weeks - though Kantar counted 0.3% of growth at flat market share at 5.1%.
Healthy eating trend
McKevitt said that despite rising prices, the healthy eating trend continued to build a head of steam, perhaps buoyed after the gluttony of the festive period and before the temptation of Easter.
Kantar found that greater demand for gluten or dairy-free products, particularly from younger shoppers, boosted the ‘free from’ category by 36% year on year.
During the past three months, 54% of the population, around 3.3m, purchased a ‘free from’ product, while research from Barclaycard also out on Tuesday found the average UK consumer now spends £91 on ‘clean and lean’ foods each month, working out to £1,092 a year – nearly half the amount an entire household spends on their food shopping.
This research of more than 2,000 adults revealed dried nuts, fruits and seeds topped shopping lists for healthy eaters, purchased by 51% of Brits, followed by organic fruits and vegetables at 37% and health supplements such as protein powder at 36%.
Analyst reaction
Neil Wilson at ETX Capital said Tesco snapping its run of six periods of sales growth "might have investors worrying about its turnaround plan given there are already fears the purchase of Booker has management taking its eye off the ball".
Despite this, Tesco shares were up 0.5% at just after 1100 BST on Tuesday, with Morrisons down by almost 1% and Sainsbury's was 1.8% lower.
"It looks like a loss in market share has investors a little rattled given the dynamics in the market and pressure on margins," he said of Morrisons.
Giving the skewing effect of Easter, Clive Black at Shore Capital said he expected trade in April to rebound somewhat, so making for an improved 12-week trend but the easing of promotional participation to an 11-year low was notable.
"Such a development is particularly interesting and perhaps ironic to our minds as 2006 was a threshold year for food inflation in the UK, when a poor harvest corresponded with rising oil prices and growing demand from Asia in particular for protein. Correspondingly, as inflation took hold, many proprietary brand manufacturers took to promotions as the prime tool with which to express value and so drive volumes," Black wrote.
Promotional participation rose from a low level of circa 20-25% to eventually reach nearer 40% in 2015.
He said the sustained over-inflating from 2006 effectively let the limited assortment discounters (LADs) of Aldi and Lidl in the UK to gain a much firmer foothold than might have been reasonably expected.
"Collectively, given the considerable pain endured by all concerned with the superstore groups, we believe that lessons have been learnt and so a closer relationship to shopper needs will prevail this time around. Promotions will feature in the mix for sure but it will be interesting to see how much the supply side tries to re-ignite promotional activity.
"We also expect the supermarkets to be a more active sieve on behalf of their customers for price recovery, with base pricing probably being a more important feature of the trading environment this time around. What all participants will be collectively seeking to avoid, we sense, is trading down, which is particularly margin corrosive should it take hold."