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Pressures on suppliers caused by the weak pound have yet to filter through to supermarket shelves as food prices continued to fall in October, but ambient products have moved closer to inflationary territory.
The latest BRC – Nielsen shop price index revealed overall retail prices fell 1.7% last month, compared with 1.8% in September.
However, food deflation decelerated marginally by 0.1% to 1.2% in October – in line with the three-month average.
British Retail Consortium CEO Helen Dickinson highlighted the marked divergence in ambient and fresh food deflation. Fresh food prices were 2% lower than in October 2015, while ambient prices were just 0.2% lower.
The supermarkets are using fresh produce as a key battleground in the ongoing price war, with Tesco’s Farm brands launch pushing down prices in the category and playing a big part in its recent turnaround.
The Grocer’s most recent Grocer Price Index for the month to 1 October also showed that the dry grocery category saw prices actually edge up 0.2% year on year after 17 consecutive months of falling prices.
“While we know that the devaluation of sterling since the Brexit vote is stoking inflationary pressures, the good news for consumers is that retailers have been successful in managing this to date and there is still no impact visible in shop prices,” Dickinson said. “However, it is inevitable that imported inflation will begin to make its mark and we would expect to start to see this effect coming through in the first quarter of 2017.”
Mike Watkins, head of retailer and business insight at Nielsen, added: “Supermarkets are keeping prices low and inflationary pressure in the supply chain is not yet being passed on, as competition for the wallet of the shopper continues to be intense.
“Fresh food is a key battle ground for attracting new shoppers and there have further price cuts in recent months. Across the non-food channel it is unseasonably warm weather that is having the biggest impact on sales so retailers are holding prices and making promotions attractive to help encourage visits to store.”
Non-food deflation remained unchanged at 2.1% for the second consecutive month, behind the three-month average of -2.2%, according to the BRC – Nielsen Index.
It predicted shop price deflation was likely to move closer to zero at the turn of the year and could even move into inflationary territory at some point during the first half of 2017.
Morning update
Kerry Group (KYGA) said it maintained the momentum of the first half into the third quarter despite the challenging conditions caused by the Brexit vote. Volumes in the first nine months of the year increased 3.2%, with its taste and nutrition division up 3.4% and the consumer foods arm up 2.2%. The Irish group also reported margin expansion (group trading margin up 70 basis points) in the trading update.
However, prices were 2.2% lower to reflect 4.5% lower raw material costs and currency headwinds came in at 4.8%, which meant reported revenues were up just 0.4% in the period.
“Despite the uncertainty and sterling devaluation resulting from the UK electorate voting to leave the European Union, Kerry Foods continued to perform well in the UK and Irish markets,” this morning’s statement said.
“The consumer foods division also maintained good growth in its selected mainland European markets and in the fast growing e-tail channel.”
Kerry expected to deliver an underlying trading performance in the full year as previously guided.
Irish nutrition group Glanbia (GLB) also updated the market on the first nine months of 2016. It reiterated full-year guidance of 8%-10% growth in adjusted earnings per share after a “good performance”. Wholly owned revenues increased 2% on a reported basis and 2.4% on a constant currency basis when compared with the same period in 2015. The performance was driven by volume growth of 3.9% and a contribution from acquisitions of 3.6%, offset by price declines of 5.1%, primarily associated with reduced dairy market prices and brand investment.
Total group revenue, including joint ventures and associates, declined 0.4% on a reported basis and grew 0.2% on a constant currency basis.
MD Siobhán Talbot said: “Glanbia delivered a good performance in the first nine months of 2016. All segments of the group delivered volume growth in the period as we continue to invest in developing our portfolio of brands and value-added ingredients to benefit from the long-term consumer trends in nutrition. The outlook for the remainder of 2016 is positive and we reiterate our full year guidance of adjusted earnings per share growth of 8% to 10% on a constant currency basis.”
Online food delivery business Just Eat reported a 34% jump in total orders in the third quarter to 33.3 million – like-for-like numbers were also up 34%. UK orders were up 28% in the quarter, despite a significantly warmer and dryer summer than 2015. CEO David Buttress said: “Just Eat has had another period of strong order growth. Whilst we continue to invest in a number of technology and marketing initiatives and are starting to see the benefits of these in many of our markets, we have continued to focus on delivering the best possible service to our restaurants and customers. Consequently, we are pleased to increase revenue and EBITDA guidance for the full year.”
Shares in Kerry Group opened up 2.3% to €67.50 on the back of this morning’s trading update, while Glanbia also started well, up 2.5% to €14.50. The FTSE 100 is currently down 0.4% to 6,889.04 points. Tesco (TSCO), Sainsbury’s (SBRY) and Morrisons (MRW) are among the morning’s fallers, down 1% to 211.1p, 0.8% to 251.7p and 0.6% to 222.3p respectively.
Yesterday in the City
Conviviality (CVR) investors raised a glass to the 211% growth in the first half at the enlarged drinks group as acquisitions of Matthew Clark and Bidendum PLB (as well as events agency Peppermint) more than trebled sales to £783m. Shares in the Bargain Booze owner shot up 4.5% to 214.3p by end of trading.
Tesco continued to defy worries over the potential £100m lawsuit linked to the historic accounting scandal, with the stock up another 1.1% to 213.1p.
WH Smith (SMWH) made gains of 2% to 1,500p, Cranswick (CWK) bounced back 1.3% to 2,145p, and Booker (BOK) was up 1.2% to 181.6p.
Morrisons slipped 1.5% to 223.1p ahead of Thursday’s Q3 trading update as broker Jefferies downgrades the shares to ‘hold’ from ‘buy’ after a 23% jump in the past three months.
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