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Aldi and Lidl are growing sales at their fastest rate since 2015 as mounting food price inflation drives consumers back into the hands of the German discounters, according to the latest market share figures.

The latest grocery market share figures from Kantar Worldpanel for the 12 weeks ending 21 May 2017, show overall grocery sales were up by 3.8% year-on-year – the market’s best performance since September 2013 – driven by a rise in grocery inflation to 2.9%.

All the major supermarkets saw rising sales, led by Morrisons (MRW) up 1.9% and Tesco (TSCO) up 1.8%. Sainsbury’s (SBRY) and Asda were up 1.7% and 0.9% respectively.

But Aldi and Lidl grew at their fastest rate since 2015 to reach a joint record market share of 12%. Aldi’s sales were up 19.8% during the period and Lidl up 18.3%.

Grocery inflation now stands at +2.9%* for the 12 week period ending 21 May 2017, driven by rising prices in markets such as butter, fish and cola, while partially offset by falling prices in categories including ambient cooking sauces and cooked poultry.

Chris Hayward, consumer specialist at Kantar Worldpanel, commented: “Consumers are starting to feel the pinch as prices continue to rise, with the average household spending an additional £27 on groceries during the past 12 weeks. That may not seem like much, but if inflation continues at its current rate over the course of a year that would mean an extra £119 spent on groceries per household.”

“Once again all ten grocers have seen sales increase, no doubt boosted by higher prices as inflation continues. Own label is also a major source of growth for all of the retailers, with sales up an impressive 6.0% year on year in contrast to branded products which grew by just 0.6% during the same period.”

Meanwhile, Nielsen’s market share figures alose released this morning found Tesco recorded the fastest growing sales of the country’s four biggest supermarkets for the second consecutive month.

During the 12 weeks ending 20 May 2017, Tesco increased sales by 2.2%, noticeably ahead of the 1.4% for Morrisons, 1.2% for Sainsbury’s and a -0.1% decline for Asda.

“Tesco’s re-focus on the customer and their changing needs, such as simplifying ranges and promotions, has meant they’ve not only attracted new shoppers but encouraged them to visit more often,” said Mike Watkins, Nielsen’s UK head of retailer and business insight. “These incremental improvements are helping reverse the declining spend per visit which was an ongoing challenge for Tesco last year. The growth is also now being supported by initiatives which revisit some wider consumer trends such as tackling food waste and supporting healthier eating and living.”

Sales at Aldi and Lidl were up 18.1% and 19.7% respectively, while Iceland’s sales grew by 9.8%.

Morning update

UK consumer confidence has edged back upwards ahead of the general election, despite squeezed living standards caused by mounting inflation and slow wage growth.

GfK’s long-running consumer confidence Index increased two points to - 5 in May, with four of the five measures increasing and and one remained unchanged.

The index measuring changes in personal finances during the last 12 months has increased by one point this month to +2; while the forecast for personal finances over the next 12 months has increased two points this month to +4, which is three points lower than May 2016.

The measure for the general economic situation of the UK country during the last 12 months was up three points to -20, while expectations for the general economic Situation over the next 12 months stayed the same this month at -21, some eight points lower than May 2016.

Joe Staton, Head of Market Dynamics at GfK, commented: ““We have an unexpected uptick in the barometer this month as consumers report increased confidence in their personal financial situation, the wider economy, and future plans for shopping and saving.

“Despite life becoming more expensive with inflation hitting its highest level in four years, and wages dropping in real terms for the first time in three years, stagnant living standards haven’t yet significantly dented consumers’ spirits – when it comes to retail therapy we remain happy to splash the cash as sales jump ahead of expectations.

“Although the Overall Index Score is bumping along in negative territory, we haven’t seen any significant fall of the kind we might expect during such periods of pre-election and pre-Brexit uncertainty. Perhaps the real squeeze in living standards is yet to hit home. After years of people paying off debts post-downturn, unsecured borrowing has steadily increased since 2014 reaching record highs this month. When will we get our comeuppance and realise we have to ‘pay-the-piper’?”

Elsewhere, the first quarter of 2017 saw exports of all UK food and drink grow to £4.9bn, up 8.3% on 2016 – the largest first quarter exports value on record.

Export growth to non-EU countries (+9.4%) increased at a faster rate than those to the EU (+7.4%).

Ireland, France and the United States are the top three destinations for UK food and drink in terms of overall value. Positive growth was reported in all top 20 markets, apart from Spain which saw a 21.6% decrease compared with 2016.

The three export markets that saw the greatest percentage growth in value in Q1 were South Korea (+40.3%), Belgium (+37.3%), and South Africa (+31.2%). beer was the key driver in export growth to South Korea, while wheat and barley were behind the rise in Belgian exports, and animal feed boosted those to South Africa.

The UK’s top three export products remain whisky, salmon and chocolate.

The BRC-Nielsen shop price index also released this morning shows escalating food prices slashing the overall level of retail deflation.

Overall shop prices reported deflation of 0.4% in April from the 0.5% fall in April, which is the shallowest deflation rate since November 2013.

Non-food deflation deepened slightly with prices falling 1.5% over the year to May compared to the 1.4% decline in April. Excluding last month this is still the shallowest deflation rate since May 2013.

Food inflation accelerated to 1.4% from the 0.9% rise in April, with fresh food inflation of 1.2% (up from 1.0% in April) and ambient food inflation of 1.8% in May (from 0.8% in April).

On the markets this morning, the FTSE 100 is back up 0.2% to 7,539.7pts.

Tesco has dropped 1.3% back to 183p after the release of this morning’s market share data. Sainsbury’s has edged up 0.2% to 280.2p and Morrisons 0.2% down to 247.2p.

Early risers include Hotel Chocolat (HOTC), up 1.4% to 395.5p, Marston’s (MARS), up 1.4% to 135.4p and Total Produce (TOT), up 1.1% to 177p.

Fallers include Glanbia (GLB), down 3.2% to €17.90, Worldpay Group (WPG), down 2.2% to 308.7p and Science in Sport (SIS), down 1.7% to 87p.

Yesterday in the City

The FTSE 100 started the short week on the back foot yesterday amid tightening poll numbers ahead of the UK general election, sliding 0.3% to 7,526.5pts.

The recovery of sterling back towards $1.30 has hit the FTSE’s tobacco firms, with British American Tobacco (BATS) sliding 1.6% to 5501p and Imperial Brands (IMB) dropping 1.6% to 3,507.5p yesterday.

The news the CMA – as expected – is opening a probe into Tesco’s takeover of Booker hit their respective shares, with Booker (BOK) down 1% to 200.6p and Tesco (TSCO) down 0.8% to 185.4p. Ocado (OCDO) also slipped 1.4% to 308.6p and Coca-Cola HBC (CCH) was down 1% to 2,247p.

Large grocery firms on the up included Associated British Foods (ABF), rising 1.2% to 2,984p and Compass Group (CPG), up 1.1% to 1,661p

Other risers included Applegreen (APGN) after informing the market of its solid start to the year, rising 4.8% to 435p.

Glanbia (GLB) was up 5.5% to €18.49, Conviviality (CVR) rose 4.1% to 337.3p and Science in Sport (SIS) rose 2.9% to 88.5p after securing a key patent.

Other fallers included Produce Investments (PIL), down 1.8% to 187.5p, McBride (MCB), down 1.6% to 195.8p and Marston’s (MARS) down 1.4% to 133.6p.

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