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Grocery price inflation has dropped to its lowest level in over 12 months at 12.2% for the four weeks to 3 September 2023, according to the latest data from Kantar.

Despite the continued drop in inflation, take-home sales from the grocers rose by 7.4% compared with the same period in 2022, a slight increase on the 6.5% growth reported last month.

Fraser McKevitt, head of retail and consumer insight at Kantar, said: “Grocery price inflation is down for the sixth month in a row but 12.2% won’t be a number to celebrate for many households. Our data shows that 95% of consumers are still worried about the impact of rising grocery prices, matched only by their concern about energy bills. After a full year of double-digit grocery inflation, it’s no surprise that just under a quarter of the population consider themselves to be struggling financially – although this is a very slight drop compared to May.”

Sainsbury’s and Tesco were the fastest-growing traditional retailers this month, growing sales by 9.1% and 9.3% respectively. Tesco’s share now stands at 27.2%, up by 0.3 percentage points from last year, and Sainsbury’s at 14.8%, up by 0.2 percentage points.

Asda and Morrisons saw sales rise by 5.1% and 2.0% respectively, while Waitrose’s growth accelerated to 5.6% this month. Ocado also saw sales increasing faster than last month, with growth now at 4.3% and market share at 1.6%.

Aldi grew sales by 17.1% and Lidl by 16.0%. Between them, the discounters now capture 17.7% of the sector.

The discount retailers have benefited from the inflationary context with knock-on effects for British shopping habits more generally. “We’re now marking one year since Aldi became the fourth largest supermarket in Britain and alongside Lidl, it has made some of the biggest market share gains over the past 12 months as consumers continue their hunt for value,” said McKevitt.

“We expect this performance to continue as inflation remains stubbornly high. However, growth rates for both the discounters have been slowing in recent months as they annualise against rapid rises last year.”

Helped by Aldi and Lidl’s growth, own label grew again by 9.9% in the latest month and supermarket lines now make up over half of everything we buy, up from 48% in August 2013.

This is equivalent to a £3bn shift in sales away from brands.

The discounter model of offering everyday low value and fewer promotions has also caught on in the wider market, with only 26% of spending now on deals compared with 38% 10 years ago.

Elsewhere, Co-op’s sales were up by 2.5% versus a year ago, while Iceland’s sales rose by 4.3%.

For the 12-week period grocery inflation now stands at 13%, with price rising fastest in markets such as eggs, sugar confectionery and frozen potato products.

Morning update

Associated British Foods has announced profitability for its current financial year will be higher than market expectations on strong growth in both its retail and food divisions.

Prior to entering the close period for its full year results for the 52 weeks to 16 September 2023, ABF has issued a trading statement saying the outlook for this financial year is slightly better than previous expectations and adjusted operating profit will be moderately ahead of last year.

In food it said it continued to see strong sales growth, particularly in grocery and ingredients, and a slightly better than expected performance in sugar.

In the fourth quarter of its financial year ABF’s grocery businesses traded slightly ahead of expectations. International brands, such as Twinings, Ovaltine, Blue Dragon and Patak’s, continue to perform well.

In particular, in the US all its brands are trading strongly. The trajectory in UK bakeries continues to improve. It now expects full-year adjusted operating profit to be significantly higher than last year.

Its sugar business traded slightly better than expected in the fourth quarter, with continued strong performance in Illovo’s key African markets, lower profitability at British Sugar driven by the production shortfall from the 2022/23 campaign, and much reduced losses at its bioethanol plant, Vivergo.

Agriculture also recovered somewhat in the second half of the financial year. However, due to its performance in the first half of the financial year, ABF expects adjusted operating profit to be modestly below last year.

Its Primark retail arm is expected to post sales of around £9bn, 15% ahead of sales last year with like-for-like sales growth of 9%.

The clothing retailer saw strong fourth-quarter sales growth, expected to be 15% with like-for-like growth of 8%.

Sales growth has been driven by selective price increases, well received ranges and strongly performing new stores.

Overall ABF said the group continued to trade well, managing inflation, recovering cash margin and continuing to drive sales in a challenging macro-economic environment.

It expects its sugar division to make a substantial improvement in profitability in the next financial year, driven by a marked improvement in the performance of British Sugar and an anticipated better UK sugar beet crop and a significant reduction in losses at Vivergo.

At Primark, ABF continues to expect a substantial recovery in gross margin as a result of lower material costs, the weakening of the US dollar against sterling and the euro and lower freight costs, all of which have improved in recent weeks.

Therefore it expects Primark adjusted operating profit margin to recover strongly in the next financial year.

Elsewhere this morning, Fever-Tree has posted a 50% drop in first-half earnings amid lower gross margins and investment in growth.

The premium mixers producer saw first half revenue of £175.6m, up 9% year on year (6% at constant currency), which included particularly strong growth in the US.

UK revenues of £53.8m were an increase of 1% year on year, driven by a slight increase in on-trade revenue and flat off-trade revenue.

In the US, Fever-Tree’s revenue for the first half of the year increased by 40% to £56.1m (up 32% at constant currency). The brand’s strong growth has been driven by gains across all categories and it has extended its number one position in the tonic water and ginger beer categories in the first half of the year.

In Europe, the Fever-Tree brand delivered 9% revenue growth across its European markets, slightly ahead of total European growth of 7%, which includes GDP portfolio brands (4% at constant currency).

Rest of the World saw a 36% drop in revenues to £9.6m, impacted by a one-off inventory buy-back in Australia, as it established its own subsidiary and transitioned to a new distribution partner in that market.

Overall group EBITDA was down 53.5% to £10.2m, with gross margins impacted by inflationary cost pressures, most notably the effect of materially elevated glass pricing in 2023.

These headwinds were partially offset by mitigating actions, including pricing actions across regions.

Continued investment behind the brand, its team and its operations, alongside some phasing effects have increased operating expenditure to 24.9% of group revenue (from 23.7% last year) and as a result, the impacts on gross margin have translated to a reduction in adjusted EBITDA margin to 5.8% (down from 13.6%).

However, the group expects improving gross margin and overhead phasing to drive an improvement in adjusted EBITDA margin in the second half of the year and are confident of further recovery in 2024 due to a combination of softening inflationary headwinds and the benefit of the actions we are taking this year.

It says it is making good progress with the mitigation of inflationary cost challenges and reiterated its gross margin guidance of 31% to 33% for the full year.

Looking ahead to 2024, due to a combination of softening inflationary headwinds and the benefit of the actions we are taking this year, the group said it was confident of delivering significant margin improvement, setting it up for strong, profitable growth.

It said it was comfortable with current market revenue growth rate expectations for 2024 and expected to deliver an improved 2024 EBITDA margin of 15%, which is ahead of current market expectations.

CEO Tim Warrillow commented: “Fever-Tree delivered good revenue growth in the first half of 2023. We had a standout performance in the US where the brand continues to go from strength to strength, extending our leadership position in the tonic and ginger beer categories. This reflects how well established the brand is becoming in the world’s largest premium spirit market.

“In the UK, despite the challenging macro-economic conditions, we ended the first half with our highest ever value share of 45%, which is over 50% higher than our nearest competitor. I have been hugely encouraged by the response to our new innovation, specifically our range of cocktail mixers and adult soft drinks, as shown by the significant and growing listings across both channels.

“Whilst the vagaries of the British summer weather have impacted sales since period end, contributing to our revised guidance for the full year, the group still expects to deliver good growth in the reminder of 2023. Looking ahead to 2024, with a stronger global market position than ever before, a broader product portfolio and our confidence in delivering significant margin improvement, the group is well set up for strong, profitable growth.”

On the markets this morning, the FTSE 100 is up another 0.4% to 7,523pts.

Early risers include Glanbia, up 3.7% to €15.79, Kerry Group, up 2.6% to €85.32 and THG, up 2.1% to 90p.

Fallers include Hotel Chocolat, down 2.6% to 113p, Finsbury Food Group, down 1.1% to 90p and Fever-Tree, down 1.1% to 1,291p.

Yesterday in the City

The FTSE 100 started the week up 0.3% to 7,496.9pts.

Risers yesterday included Just Eat Takeaway.com, up 4.1% to 1,053p, THG, up 3.2% to 88.1p, Nichols, up 1.9% to 1,075p, Haleon, up 1.9% to 324.8p and British American Tobacco, up 1.8% to 2,638.5p.

The day’s fallers included Ocado, down 2.3% to 808.2p, Naked Wines, down 1.7% to 69.5p, Compass Group, down 1.2% to 2,2024p, Diageo, down 0.8% to 3,175p, Marks & Spencer, down 0.6% to 220.5p and SSP Group, down 0.4% to 229.8p.

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