City snapshot: Grocery sales fall for the first time in three years

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Grocery sales have fallen back for the first time in three years as last year’s record early summer temperatures hit year-on-year comparisons.

According to grocery market share figures from Kantar, sales fell 0.5% in the 12 weeks ending 14 July as spend on traditional summer categories declined.

The standout performer was Ocado (OCDO), whose customers bought online more frequently than last year. It sales climbed almost 12% to £327m.

Kantar said Ocado’s business model shielded it from the effects of shoppers cutting back on unplanned and smaller trips, which had impacted the bricks and mortar retailers. Ocado’s customers were buying online more frequently than last year, it said.

Aldi achieved a record share of the market – 8.1% – while rival Lidl was the fastest growing bricks and mortar retailer this period with sales up 7% to £1.5bn.

Fraser McKevitt, head of retail and consumer insight at Kantar, said: “Lidl increased alcohol sales by 19%, bucking the market trend partially thanks to its deal offering 25% off when buying six bottles of wine, reflecting efforts the retailer is making to encourage shoppers to purchase by the trolley not the basket.”

This focus was also evident through its newspaper voucher deals, which offered a discount when people spent £20 or more.

Symbols and independents were the biggest fallers – off 4.1% to £480m. The Co-op achieved 0.2% sales growth to £1.7bn.

“Growth of 0.2% may sound modest, but it is particularly impressive considering it comes on top of a record increase of 6.4% last year,” McKevitt said.

The Co-op’s popular beer and pizza deal, which offered a full night in for only £5, sold well in 2018 and had now returned to the shelves. “The retailer will be hoping this eventually translates to additional market share, which remained flat this period at 6.4%,” said McKevitt.

Growth slowed at every supermarket except Ocado with shoppers heading out to stores less often.

Last year people shopped more frequently and closer to home as they topped up the cupboards while enjoying the sunshine and the men’s football World Cup.

“This year households are making one fewer trip, which may not sound like much but is enough to tip the market into decline. In addition, like-for-like grocery inflation fell marginally to 0.9%, which is good news for consumers but has made it harder for retailers to achieve value growth.”

Meanwhile, the latest total till data from Nielsen shows total grocery sales fell 0.5% in the past four weeks despite an 11.6% year-on-year increase in TV and press advertising between April and the end of June to £72.76m.

The data also shows shoppers spent less per visit compared with the same period last year.

Growth was significantly impacted by strong sales during the same period last year, during which grocery spending surged 4.5%, thanks to the hottest June in 20 years, the early heatwave in July and the rise in food and drink spend during the World Cup.

Nielsen’s data shows that over the past 12 weeks, sales fell at every major supermarket, with Marks & Spencer (MKS) experiencing the largest decline of 3.6% followed by Morrisons (MRW), down 3.1% and Waitrose off 2.9%.

The discounters fared well, however, with Lidl sales up 12.8% and Aldi up 8.5%. Iceland enjoyed a 0.2% uplift.

Mike Watkins, Nielsen’s UK head of retailer and business insight, said: “Our latest data shows that some of the weakness in recent grocery spend is linked to the strong summer of 2018, where the warm weather peaked and consumer spirits were high on the events of the World Cup.

“This year, retailers have had to work harder to drive shoppers to spend, and the increase in press and TV advertising spend proves that retailers are looking at more creative ways to achieve this.”

The drop in sales, however, was also a sign that consumers were starting to change how they spent with a small majority of consumers now switching to cheaper grocery brands to save money.

Morning update

McColl’s Retail Group’s (MCLS) interim pre-tax profits have plunged from £2.3m to £200,000 on total revenue up from £610.4m to £611.1m.

Post office revenue was included in the revenue figures for the first time where previously it was included in “other operating income”. Other 2018 metrics have been restated accordingly to ensure comparability.

The business achieved positive like-for-like (LFL) sales despite sales falling in May as the UK experienced a prolonged period of poor weather compared to the start of last year’s long hot summer.

LFL sales edged up 0.4% in the second quarter, giving a total LFL increase of 1% for the 26 weeks to 26 May. The rate of LFL growth fell significantly in the final month of the first half as the whole sector suffered from strong year-on-year comparatives coupled with colder weather this year.

The company said a focus on operational standards was driving further customer satisfaction.

The investment in the estate had continued with 17 convenience store refreshes completed.

It opened three new convenience stores in the 26 weeks to 26 May and divested 41 underperfoming newsagents and smaller c-stores as it continued to “reshape and optimise” the stores.

Trials of Morrisons Daily fascias were under way at 10 of the refreshed stores.

Range reviews had included the beer and cider range at the end of April, increasing the number of lines and space allocated to growing categories such as craft and world beers.

Consequently it had seen an “encouraging” improvement in its performance in this category.

It was are also working with Morrisons to refine the Safeway range, looking to introduce new products to enhance the offer.

As it continued to establish the range, it had introduced some long-term multi-buys on key fresh products such as beef burgers and sausages as part of a ‘Taste of Summer’ campaign.

Full reviews under way for soft drinks, confectionery, wine and healthy snacks, and by the end of the year it expect to have made improvements to our range across all categories.

Jonathan Miller, chief executive, said the key priorities McColl’s outlined for this year were to stabilise the business and to refocus on retail execution following a challenging 2018.

“We have made good progress on both of these fronts whilst also maintaining strong capital discipline, reducing debt whilst sustaining appropriate levels of investment.”

He said he was encouraged by the performance as it regained greater operational stability, but it still had more work to do in the second half.

“The market remains highly competitive, with challenging trading conditions, given the unseasonable weather and uncertain economic climate.

“Despite this, we expect to be broadly in line with expectations for the full year and we are confident that our strategy, combined with the cash generative and profitable nature of our business, will deliver sustainable returns for shareholders in the long term.”

Priorities for the second half of the year were unchanged McColl’s continued to stabilise the business and focus on good retail execution.

It said it expected the market to remain competitive as all grocery retailers faced the challenge of strong year-on-year comparatives following a very hot summer last year.

These weaker trading conditions over the summer would continue to form a challenging backdrop, but it expected to be broadly in line with expectations for the full year.

Fevertree Drinks (FEVR) has reported interim pre-tax profit up from £32.7m to £35m on revenue up 13% from £104.2m to £117.3m, in what chief executive Tim Warrillow said was “an encouraging first half”

The premium tonics specialist said it continued growth across all four regions and strengthened its position as the top brand across the UK mixer category.

It noted “very encouraging momentum” in the US with notable national distribution gains in the first half.

It said it achieved significant off-trade distribution wins in key European markets and accelerated growth in Australia and Canada.

Tim Warrillow, chief executive said while the company had not been immune to the impact of unseasonably poor weather in the UK, it had further strengthened its market leadership position in the UK and had seen positive momentum in Europe and the rest of the world, reflecting the business’s increasingly global footprint.

“The move to long mixed drinks is gathering momentum and starting to win share from beer and wine. Our broad range of high-quality mixers, relationships with spirits companies, brand strength and our growing international distribution network provide us with confidence in the significant global opportunity that lies ahead for the group.

“Whilst we remain mindful of the tough comparators over the remainder of the summer in the UK, the board anticipates that the outcome for the full year will be in line with its expectations,” Warrillow said.

PZ Cussons (PZC) has unveiled a new strategy, built around “Focus, Scale and Accelerate” alongside “mixed” financial results for the full year.

Caroline Silver, chair, said resources and investment would be prioritised behind key categories and brands in only those geographies offering the clearest opportunities in order to return the group to sustainable, profitable growth.

“Our cost base will be tightly managed and we will act at pace. The results from this will not be immediate, but we expect 2019/20 to be an important transitional year,” she said.

The company announced adjusted pre-tax profit climbed 12.9% from £80.1m to £69.8m in the year to the end of May – in line with expectations – on revenue down 6.8% from £739.8m to £689.4m.

Reported profit before tax declined to £37m, largely driven by the non-cash impairment of intangible assets.

It said a moderate decline in revenue of 2.6% at constant currency was driven by weak economic conditions in Africa, partially offset by a solid performance in Asia Pacific and Europe & the Americas.

It’s net debt fell from £165.4m to £152.2m following a stronger focus on cash management throughout the business.

Silver said a combination of solid performances in Europe and the Americas, with strong growth in the beauty business unit and Asia Pacific, contrasted with “very disappointing” results in Africa.

“As we anticipated at the half year, the adjusted profit before tax of £69.8m reflects the negative impact of the extremely tough macroeconomic conditions in Nigeria, which has historically been a key profit driver.

“We cannot rely upon short term economic conditions improving markedly in our key markets and are therefore taking action to reposition the group to return to profitable growth. We have today announced a new strategy, built around Focus, Scale and Accelerate.”

On the markets this morning, the FTSE 100 rose 0.5% to 7,554,3pts in early trading.

Early risers include Applegreen (APGN), up 2.4% to 510p, DS Smith (SMDS), up 1.5% to 372.6p, British American Tobacco (BATS), UP 1.4% TO 3,109p and Imperial Brands (IMB), up 1% to 2,149.5p.

Fallers so far today include McColl’s Retail Group (MCLS), down 5.7% to 66p following this morning’s interims, Fevertree Drinks (FEVR), which also reported interims, fell 5.7% to 2,169p, McBride (MCB), fell 3.2% to 65.7p and Tesco (TSCO), dropped 2.3% to 229.9p. PZ Cussons (PZC) slipped 1.88% to 222.93p following this morning’s full-year results.

Yesterday in the City

The FTSE 100 closed up 1% at 7,514,93pts ahead of today’s anticipated announcement that Boris Johnson is Theresa’s replacement as prime minister.

FTSE 100 fallers included Wynnstay Group (WYN), off 2.4% at 305p, SSP Group (SSPG), down 2.1% to 686p, Majestic Wine (WINE), down 2.1% to 259p, Greene King (GNK), down 1.8% to 649p and Morrisons (MRW), down 1.8% to 205.7p.

Stocks on the up included McColl’s Retail Group (MCLS), up 5.3% to 70p ahead of today’s interims, Fevertree Drinks (FEVR), which also posted interims this morning, up 4.9% to 2,300p, PZ Cussons (PZC) climbed 4.6% to 227p ahead of today’s full-year results, DS Smith (SMDS) rose 2.7% to 367p and Just Eat (JE), closed up 2.3% at 640.8p.