City snapshot: Bank holiday sun helps grocery market back into growth

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The grocery market has returned to growth with a 0.5% uplift in value sales, the latest grocery market share figures from Kantar show.

Speculation about Brexit-induced stockpiling appeared wide of the mark as households bought 0.9% fewer items that last year in the 12 weeks ending 8 September.

Fraser McKevitt, head of retail and consumer insight at Kantar, said shoppers made the most of the forecast for August Bank Holiday and spent £1.3bn from Friday through to Sunday – marginally more than last year.

Lidl was the fast growing supermarket, with three-month growth of 9.2% taking it to a new record high market share of 6% compared with 5.5% this time last year.

McKevitt said the discounter’s new openings, refurbishments and newspaper voucher deals helped Lidl’s continued ascendancy.

“Having moved through the 5% barrier as recently as May 2017, the retailer has taken just over two years to add another percentage point to its market share – one that’s worth £1.2 billion annually,” he said.

Rival Aldi increased sales by 6.3% with its strongest growth in the south of England, according to McKevitt, where sales increased nearly 9%.

“The discounter’s lowest market share continues to be in London, where it only accounts for 3.3% of grocery sales, so it’s unsurprising that this week it announced plans to more than double its number of stores within the M25,” said McKevitt.

The Co-op increased sales by 1.8% and one third of British households visited the retailer during the past three months – nearly twice a week on average.

Ocado (OCDO), one again, was the fastest growing overall retailer. “With one year to go until Ocado starts selling M&S products alongside its own lines and national brands, sales at Ocado were up by 12.7%. Ice cream, cheese and sparkling WINE all experienced growth in excess of 20%,” McKevitt said.

Sainsbury’s (SBRY) enjoyed its strongest period since last October – the best performing of the big four for the second month in a row despite a 0.1% decline in sales.

The retailer increased its rate of sales on promotion faster than any other retailer with its Price Lockdown strategy lowering prices on meat and fresh produce in particular.

Asda’s sales fell 1% and Tesco’s 1.4%, although Tesco (TSCO) enjoyed some bright spots including an 11% increase of sales of free-from products.

Its own value lines, such as Redmere Farms and Creamfield made sales of more than a third of a billion pounds, according to McKevitt.

Morrisons (MRW) market share dipped to 9.9% as sales fell 2%. Waitrose sales fell 1.3% and Iceland by 2%.

Kantar said grocery inflation now stood at 1% for the 12 weeks ending 8 September with prices increasing fastest in markets such as crisps, canned fish and frozen fish, while falling in canned cola, chilled fruit juices and instant coffee.

Meanwhile, the latest figures from Nielsen, also released today, showed shoppers spent more than £193m more than they did in the same period last year over the past four weeks as grocery sales rose 2.2%.

Soft drinks sales climbed 5.1%, frozen foods and beer, and wine and spirits categories grew 4.1% and 3.3% respectively.

Shoppers bought more barbeque equipment with sales up 127%. Suncare sales jumped 26%, and ice cream 17%. Shoppers also spent £5.7m more on pre-mixed alcoholic drinks, an increase of 32%.

Despite strong sales for these categories and overall growth, there were mixed fortunes for retailers over the past 12 weeks, as all of the top four retailers saw a drop in market share.

M&S enjoyed growth in food sales over the 12 weeks, and discounters maintained a 16% market share.

Mike Watkins, Nielsen’s UK head of retailer and business insight, said momentum had been hard to sustain over the summer as seen in the 12 but in the latest four weeks there had been strong performance from the Co-op as well as Sainsbury’s which had attracted more than 370,000 new shoppers and was currently the fastest growing top four supermarket.

“We are also seeing sales improve at M&S with new marketing campaigns designed to attract more frequent visits to their food halls and standalone food stores.”

Nielsen anticipated a slow start to the September to December trading period, and did not expect sales to accelerate until the end of November.

“For the major supermarkets, there are three challenges ahead,” said Watkins. These were “to grow spend per visit faster than the discounters; to encourage shoppers to visit more often for their various shopping occasions, and to roll out inspiring advertising campaigns that will help to build loyalty through to the end of the year, including the crucial month of December.”

Retailers would also need to ensure their messages resonated with the increasingly price-conscious and Brexit-conscious shoppers, said Watkins

Morning update

Ocado (OCDO) has issued a third-quarter trading statement for Ocado Retail, the 50:50 joint venture between Ocado Group and Marks Spencer Group showing growth in retail revenue of 11.4% in line with its guidance for the remainder of the year.

Growth in average orders each week was 12.1% as more delivery slots became available but the average order size fell 0.8% in the 13 weeks to 1 September, which Ocado said reflected slightly greater purchase frequency.

Ocado’s fourth customer fulfilment centre, in Erith, Kent, added capacity which aided growth.

Melanie Smith, Ocado Retail’s chief executive, said the first set of results from the joint venture between Ocado Group and M&S showed the resilience of Ocado following the Andover fire and the momentum the business now had.

As it continued to enhance its offering and add more capacity in the UK, “our leading partnership will deliver the very best experience to an ever-growing number of customers”.

Smith said bringing Ocado and M&S together online would give UK consumers even greater choice, value and service and create important new opportunities for staff, suppliers, and others.

“These are really exciting times for Ocado as we prepare to launch the full M&S food range online for the first time ever, which customers will be able to buy alongside their other favourite products on Ocado.com from September 2020 at the latest.”

Tim Steiner, Ocado Group chief executive, said: “Together, we are committed to improving even further the Ocado customer experience and growing the business to the benefit of all our stakeholders.”

Retail technology group Eagle Eye has posted a 23% increase in annual revenues to £16.9m, driven by a 32% sales increase from its AIR platform which now represents 94% of total revenues.

The growth in revenue, combined with cost controls has resulted in the group moving to an EBITDA profit of £0.7m compared to a loss of £2m last year. Loss before interest and tax fell to £2.5m from £5.1m.

This EBITDA profit was delivered ahead of the board’s expectations and resulted in a £0.6m reduction in the group’s net debt position in the second half of the year to £1.2m.

CEO Tim Mason said: “I am delighted to report a year of continued growth; in revenues, capabilities and market reach, delivering a breakthrough into EBITDA profitability. However, we believe that we are just at the start of our journey. Our customers see the Eagle Eye AIR platform as key to competing in today’s digital retail environment and we are confident that the drive to digital is only going to increase in the years ahead.

“We enter the current financial year with a rapidly expanding pipeline of both UK and international opportunities, and the enhanced ability to service them through our powerful and more scalable new Google Cloud environment. Our expanded geographic reach, increasing base of recurring revenues, blue chip customers and strengthened financial and operational position, means that we look to the future with confidence.”

Treatt (TET) has struck an agreement to develop a new head office on Suffolk Park, Bury St Edmunds, at an estimated total cost of £2.5m.

It will begin construction this month.

Completion is expected for next summer with occupation shortly afterwards.

Daemmon Reeve, chief executive, said: “This marks a significant step in Treatt’s history and will provide our teams with the facilities and positive working environment to underpin our ambitious future growth plans.”

Sustainable waste management company Biffa hosts a Capital Markets Day today in an event that will include presentations from the management team.

It will focus on the key areas of the group’s growth strategy including plastics recycling and energy from waste.

On the markets this morning, the FTSE 100 edged 0.1% higher at 7,329.8pts in early trading.

Early risers include Glanbia (GLB), up 3.8% to €11.44, PayPoint (PAY), up 2.5% to 927.5p, Premier Foods (PFD), up 1.1% to 37.4p, PZ Cussons (PZC), up 1% to 212p and Compass Group, up 0.8% to 1,970.5p.

Fallers so far today include Science in Sport (SIS), down 2.2% to 52.3p, Ocado Group (OCDO), off 1.7% to 1.326.5p, following this morning’s trading statement, Hilton Food Group (HFG), fell 1.4% to 969p and recently demoted Marks and Spencer Group (MKS), dipped 1.4% to 202.6p.

Yesterday in the City

The FTSE 100 closed down 0.6% at 7,321.4pts yesterday.

News emerged that Asda’s like-for-like sales grew at a faster pace last year than in 2017 – up 1.6% compared with 0.5%, its annual report revealed.

Pre-tax profit grew 6.7% from £666m to £710.4m on group revenues up 3.1% to £22.9bn. Operating margin increased by 9.2% compared with a 13% decrease the previous year.

The Walmart-owned superstore group said it had achieved a second consecutive year of positive like-for-like sales growth against the backdrop of a highly competitive market.

The continuation of its low-cost operating model programme combined with “fixed cost leverage” had resulted in a 9.2% increase in operating profit from £735.4m to £803.2m.

Asda, through its programme of targeted price investment on key lines, had helped mitigate the impact of food inflation on its customers, according to the strategic report posted at Companies House.

Fresh food availability had improved as a result of changes to its supply chain and store processes.

Asda said sales in its online business had grown ahead of the market and improved customer service and developments to the website, mobile and tablet apps had made it easier and fast to shop online.

The group’s wholly-owned subsidiary, International Procurement & Logistics, which sources fresh produce, wine, chilled products, ambient produce, flowers and plants directory from growers and manufacturers for Asda, continued to deliver savings.

Capital expenditure during the year focused mainly on replacing “essential assets and refreshing the estate”.

The report said: “We remain focused on helping our customers to save money and live better through finding innovative new ways to improve our offer in store and online.

“Through the low-cost operating model, we continue to generate cost savings which enable us to invest further in price, quality and service to customers.

With regard to Brexit, Asda said it had a “cross-functional working group” in place whose many object was to manage the impact on the group to minimise disruption to its customers by protecting availability of key imported products, including the use of extra UK ports.

It had also considered the potential tariff impact and the Customs regime in relation to product imported form the European Union and had plans in place to reduce risk.

Rob McWilliam, Asda chief financial officer, said: “The challenges faced in the market during 2018 have only intensified as we move through 2019 and we remain steadfast in our approach to win on price, deliver a consistent customer experience and drive growth where customers care.”

FTSE 100 fallers included Glanbia (GLB), down 5.7% to €11.02, Wynnstay Group (WYN), off 4.1% at 271p, Greggs (GRG) came off the boil by 2.7% to close at 1,993p and Just Eat (JE), slipped 2.6% to 674p.

Stocks on the up included Finsbury Food Group (FIF) which enjoyed a strong 6.9% uptick to close at 70p after posting strong preliminary results for the year to 29 June. McColl’s Retail Group (MCLS), managed a 3.2% uplift to 47p, Kerry Group (KYGA), climbed 0.9% to €105.9 and Coca-Cola HBC (CCH), shifted up 0.7% to end the day at 2,617p.