City snapshot: Shoppers cut back grocery spending post-Christmas

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British shoppers are reining in grocery spend post-Christmas, as UK supermarkets experienced a continued decline in volume sales during January.

New market share data for the four weeks ending 28 January 2023 from NielsenIQ shows that, although total till grocery sales rose by 7.6% in the period, this was due to an increase in food price inflation, which reached new highs of 13.8% in January.

This decline in shopper activity is reflected in the decrease in volume sales (–6.9%). This is the lowest volume growth recorded in over nine months, and reflects the concern shoppers have about cost of living increases, NielsenIQ said.

In particular, UK supermarkets experienced a very slow first week of January due to the bank holidays, albeit weekly value growths improved at the end of the month.

Shoppers likely tried to shop to a fixed budget to save money, Nielsen said, and focused on essentials, with bakery (up 12.6%), dairy (11.5%), petfood/care (10.4%) and frozen sales (8.9%) all experiencing an increase in value sales.

However, fresh produce value sales fell 3.6%, while value sales for beers, wines and spirits declined 4.7% (with volumes down 8.5%). Volume sales for meat and poultry also fell 10%.

NielsenIQ also found that sales were strongest at bricks and mortar stores (up 9.4%) with a 8.7% fall in online sales.

In terms of retailer performance, the discounters continued to show strong momentum with sales growth of almost up 20% compared with the same time last year, with Lidl overtaking Morrisons with 12-week market share of 8.9% and 8.3% respectively.

Morrisons sales were down 0.5% in the period, with all other retailers in value growth.

Tesco was up 8.1%, Sainsbury’s up 8.3% and Asda up 7.4%.

Elsewhere, Co-op was up 8.3%, Marks & Spencer by 10% and Iceland by 9.1%.

Mike Watkins, NielsenIQ’s UK head of retailer and business insight, said: “We expect a challenging first quarter for the grocery industry, with inflation very much top of mind for shoppers. As a result, shoppers will continue to trade down to cheaper brands or private label products. In January we have seen private label sales grow in household by up 16.5%, ambient grocery by up 16.8% and frozen by up 20.2%.

“Also, when consumers are cash-poor, they also shop more frequently and across more retailers, because they can only afford to shop for groceries ‘little and more often’ to help manage household budgets. This will probably continue until Easter, when family gatherings and hopefully better weather gives a boost to sales.”

Morning update

Brewing giant Carlsberg said it delivered “strong results in a challenging environment” last year.

2022 saw organic volume growth of 5.7%, with Western Europe up 5.4%, Asia up 10.3% and Central & Eastern Europe falling 0.1% due to the war in Ukraine (excluding Ukraine sales were up 4.9%).

Growth was drive by volume growth of international premium brands, with Carlsberg up 14%, Tuborg 9%, Grimbergen up 11% and Somersby up 1%. 1664 Blanc fell 4% affected by lower volumes in Ukraine and China.

Alcohol-free brews in Western Europe were also up 7%, but overall total alcohol-free brews excluding Ukraine were up a more modest 1%.

Total organic revenue growth was 15.6% as revenue per hectalitre jumped 9% with pricing growth across all regions.

Reported revenue growth was 6.9% to DKK 70,265m.

Organic operating profits were also up 12.2%, reflecting on-trade recovery in Western Europe and strong Asia performance, particularly in the first half, partly offset by higher commodity prices and energy costs.

Reported operating profit growth was 13.2% to DKK11.47bn with an operating margin 16.3%.

Carlsberg warned 2023 would be another “challenging” year.

Due to its and its suppliers’ rolling hedging, it said last year’s commodity and energy price increases would have a significant impact on its 2023 cost of sales and logistics costs.

It said it intended to offset the higher costs in absolute terms through pricing, mix and continued tight focus on costs.

“While beer historically has been a resilient consumer category, the higher prices in combination with generally high inflation may have a negative impact on beer consumption in some of our markets, particularly in Europe,” it warned.

Due to uncertainty, it forecast a wide organic operating profit result of –5% to 5%.

CEO Cees’t Hart said: “The group delivered a strong set of results for 2022 thanks to an impressive effort by our employees across the group and continued good execution of our strategy. The high earnings and very strong cash generation were achieved despite many challenges, including the war in Ukraine, rising energy and commodity prices, and the impact from the pandemic, particularly in Asia.

“Throughout the year, a key priority was the safety and wellbeing of our Ukrainian colleagues, whose resilience, courage and strength have impressed us deeply.

“2023 will be another challenging year, but the strategic, organisational and financial health of our company is strong, and we are confident that our purpose-led and performance-driven culture will drive continued sustainable long-term value creation.”

East Imperial, the listed supplier of premium mixers, posted deliver strong top-line growth in 2022, with revenues increasing 15.5% year on year to approximately £3.2m.

Revenues were driven by increased sales across all markets, with approximately 230,000 cases sold and greater revenue per unit.

In the key strategic US market, case sales were up 68% as its distribution agreement with Republic National Distributing Company began to bear fruit.

In its more established APAC market, sales in the period were in line with the board’s expectations due to Covid lockdowns in the first half of the year. However, as restrictions lifted across the region, the group has seen a strong return to growth in the second half.

As the Chinese market reopens, East Imperial said it remained well placed to continue to capitalise on demand from premium customers after signing a distribution agreement with Wen Hua Hang Wine Spirits Company in August 2022.

Looking ahead to 2023, while it warned that market conditions would continue to have an impact on margins, it said the pressure had eased in the past quarter due to a softening of freight charges, and this margin improvement had continued into 2023.

The group said it remained “laser-focused” on margin improvement opportunities in the medium term, with initiatives underway to significantly reduce manufacturing costs.

CEO Tony Burt commented: “The double-digit revenue growth we experienced over the year is testament to excellent customer demand for our product in key markets as well as the strong operational foundations we have put in place.

“2022 was a transformational year for our US business, with the expansion of our distribution network and the appointment of a bottling partner, and I am very excited about the potential for growth in the coming years.

“This positive momentum is continuing into 2023, as we continue to benefit from the ongoing shift towards premiumisation across the beverage industry and we remain confident in our strategy of aiming to be the only ultra-premium choice for mixers in our markets.

“After three years of Covid restrictions we feel that the shackles have been fully lifted and the path is now clear for us to resume an even greater growth trajectory.”

Consumer card spending grew 9.7% year-on-year in January, according to Barclaycard, as new year sales, blockbuster film releases and a surge in holiday bookings led to strong performances across retail, entertainment, and travel.

The 9.7% growth was higher than in December (4.4%) and slightly above the 9.2% rise in consumer price inflation.

However, growth rates were also increased by the omicron Plan B restrictions in January 2022, which caused a drop in non-essential spending at the time, thereby inflating this year’s figures.

Data from Barclays revealed that spending on essential items increased 8.3% – a sizeable uplift compared with December (5.1%). Spend on fuel (9.3%) was slightly less than last month (10.6%), likely due to falling petrol and diesel prices.

Shopping at supermarkets (7.5%) and food and drink specialist stores (3.4%) saw slightly higher growth than in December (5.5% and down 0.2% respectively), primarily due to rising food prices, and consumers committing to their new year’s resolutions by cooking more from scratch instead of ordering fast food.

One in four consumers (27%) say they were limiting the number of takeaways they ordered, which is one of the reasons why the takeaway category saw its lowest growth (9.0%) since May 2022.

The rise in supermarket spending is even more significant in the context of last year’s Plan B restrictions; the category performed well while the social distancing restrictions were in place, which should have artificially dampened 2023’s figures – demonstrating the extent to which price increases are impacting grocery spend.

Looking at energy bills, the cold snap in January led to more people switching on or turning up their heating, with spending on utilities up 44.7% – the highest rate of growth since Barclays began tracking this data in April 2022.

Spending on non-essential items grew 10.4% year on year in January – the largest increase since May 2022. This was largely due to retail, hospitality and travel all seeing noticeable growth compared to the same period last year, when Plan B omicron restrictions were in place.

Esme Harwood, director at Barclays, said: “January saw a number of categories bounce back from last year’s Plan B restrictions thanks to Brits booking holidays, taking trips to the cinema, and snapping up bargains in the sales.

“However, while it’s encouraging that confidence in household finances saw a slight boost, it is clear that Brits will still need to find ways to manage their budgets over the coming months amid rising grocery price inflation and mounting utility bills.”

Silvia Ardagna, head of European economics research at Barclays, added: “We think that the UK economy is likely to contract in Q1, as demand drops in real terms due to the loss in household purchasing power, as well as rising energy and mortgage bills. However, the silver lining is that the labour market remains tight, with low unemployment and elevated wage growth.”

On the markets this morning, the FTSE 100 is up 0.5% to 7,879.4pts.

Risers include Sainsbury’s, up 1% to 269.2p, Marks & Spencer, up 1% to 160.2p and Haleon, up 0.9% to 333.7p.

Fallers include McBride, down 4.6% to 22.6p, Wynnstay, down 1.7% to 540.6p and THG, down 1.7% to 58.9p. 

Yesterday in the City

The FTSE 100 started the week on the back foot, dropping 0.8% to 7,836.7pts yesterday.

Consumer tech firms were amongst the major fallers again, with THG down 5.1% to 59.9p, Deliveroo, down 4.7% to 90.1p, Ocado, down 3.4% to 713.8p (and partner Marks & Spencer down 2.7% to 158.6p) and Just Eat Takeaway, down 3% to 2,104.5p.

Other fallers included Science in Sport, down 2.2% to 13.2p, Fever-Tree, down 2.1% to 1,110p, B&M European Value Retail, down 2.1% to 483.2p, SSP Group, down 2% to 269p and Naked Wines down 2% to 127.9p.

The day’s few risers included Bakkavor, up 5% to 119p, Hotel Chocolat, up 1.8% to 226.5p, Tate & Lyle, up 1.6% to 787p, Kerry Group, up 1.4% to €89.04 and AG Barr, up 1.1% to 553p.