Supermarket growth slows as Christmas approaches

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UK supermarket sales growth eased last month amid political uncertainty and wet weather ahead of the crucial Christmas trading period.

The latest grocery market share figures from Kantar show that year-on-year supermarket sales grew by 1.0% over the past 12 weeks, a drop from the 1.3% growth reported in last month’s figures.

The sales drop came despite an increased focus on seasonal events and promotions.

Slowing growth in the overall market meant the four largest retailers all saw sales declines in the period. Sales at Asda and Morrisons (MRW) fell by 1.2% and 1.7% respectively, while Sainsbury’s (SBRY) and Tesco (TSCO) proved slightly more resilient with sales down 0.2% and 0.6% respectively.

Discounters Aldi and Lidl grew by 8.5% and 5.9% respectively, while Co-op continued its strong recent performance with growth standing at 4.4%.

Kantar said industry attention has already turned to Christmas, with £17 million spent on mince pies and £3 million on Christmas puddings so far this year.

Fraser McKevitt, head of retail and consumer insight at Kantar commented: “It should come as no surprise to see the grocers jostling for position early – with the average household expected to spend more than £380 on groceries during December. In total, shoppers will spend nearly £11 billion in that month alone, showing how it’s a crucial period for retailers.”

Kantar found grocery inflation now stands at 0.8%† for the 12 week period ending 3 November 2019, with prices rising fastest in markets such as fresh sausages, frozen fish and ambient cooking sauces, while falling in fresh poultry, butter and instant coffee.

Meanwhile, Nielsen also found that UK supermarkets have experienced a slow start to the festive period, with grocery sales slowing to just 1.1% growth in the last four weeks.

While grocery sales increased by almost £500m in the last 12 weeks, all of the big four supermarkets (Tesco, Sainsbury’s, Asda and Morrisons) experienced a decline in sales. Their combined market share fell to just below 64%, compared with 67% this time three years ago.

However, despite the slow start, grocery spending is expected to rebound in the next four weeks, as the roll out of retailers’ high profile Christmas advertising campaigns continues to take effect and boost the festive shopping momentum.

Mike Watkins, Nielsen’s UK Head of Retailer and Business Insight, said: “The in store promotional activity ahead of the festive period, from Halloween to retailers’ money off vouchers, clearly proved less effective with consumers as grocery sales largely fell flat in the last four weeks at the big four supermarkets.”

“Whilst the economy remains Brits’ number one concern, rising food prices and global warming are climbing up the agenda, and are all motivating shoppers to spend differently. Moreover, with the continued uncertainty around Brexit and now a general election on the horizon, shoppers are increasingly adopting a savings mindset.”

“This has caused a relatively slow uptake to the promotions in the last few weeks, but we can expect the shopping momentum to pick up as the seasonal period draws closer and shoppers embrace the festive spirit.”

Morning update

Premier Foods (PFD) has posted “strong” first half growth “ahead of the market” as it returned to profitability as the strategic review of its business continues.

The Mr Kipling and Batchelors owner posted a 2.4% rise in growth revenues for the 26 weeks to 28 September to £366.7m.

Branded sales were up 4.3% to £309.7m while non-branded revenues fell back 6.8% to £57m.

Growth accelerated in the second quarter, with overall revenues up 3.6% in the quarter and branded revenues up 5.6%.

The group’s top eight brands together saw sales growth of 4.8% in the half year and 5.8% in the second quarter, with over half of this growth being volume driven.

Grocery branded revenues grew+3.8% to £218.2m in the first half and were up 6.2% in the second quarter as Premier benefited from more favourable weather conditions in the second quarter and some Brexit stock building by customers.

The business unit’s largest brand, Bisto, saw revenue growth in the period following benefits from the launch of convenient Bisto gravy microwave-ready pots and earlier advertising than in previous years. Nissin Soba Noodles & Cup Noodles saw “exceptionally strong growth”, with sales up 111%, while sales of Batchelors were ahead in the UK although broadly flat at a group level and its cooking sauces saw a return to volume growth.

In Sweet Treats, key brand Mr Kipling grew revenues by 8% continuing its momemtum from a brand relaunch in 2018/19 and benefitting from TV advertising and the introduction of its new ‘Signiture’ range.

Premier said consumer marketing investment increased in the first half and is set to continue in the second half of the year. It also has an “exciting innovation pipeline” for the rest of the year, including new plant-based brand ‘Plantastic’ now in market.

The group reported trading profit of £51.1m in the period, slightly ahead of the equivalent period a year ago.

Operating profit of £35.9m in the first half of FY19/20 compared to £28.3m in the prior period. The growth was largely attributable to lower restructuring costs compared to the prior year and a lower charge for amortisation of intangible assets.

Statutory profit before tax of £15m reversed a loss of £2.2m a year ago.

Net debt was £38.8m lower than a year ago on pre-IFRS 16 leases basis at £470.7m.

Newly installed CEO Alex Whitehouse commented: “In presenting my first set of results as CEO of Premier Foods I’m encouraged by our strong start to the year

“I am also announcing a new Executive Leadership team structure which provides us with sharper consumer, customer and operational focus. Our operational strategy is unchanged, but we now have increased energy and impetus.

“With a better H1 than planned, we are confident in our expectations for progress in the full year. As we look a little further ahead, and in light of our disciplined and consistent track record of net debt reduction, we start to see options for our future deployment of cash.”

The wide-ranging strategic review of the Premier business is not yet completed, but Premier said the exercise is “nearing conclusion”.

Elsewhere, B&M Bargains owner B&M European Value Retail (BME) has posted strong “strong” first half growth in the UK, but announced a strategic review of its slower growth German operations.

Group-wide revenues (excluding Babou which was acquired after the half year last year) increased by 12.4% to £1.76bn and by 12.3% on a constant currency basis in the half year to 29 September.

B&M UK stores sales were up 13.8%, which included like-for-like revenues growth of 3.7%.

The company added that trading so far in Q3 has seen continued solid organic sales growth in the B&M UK stores business and it is well placed for the ‘golden quarter’ trading.

A total of 30 gross new B&M UK stores were opened in the period of which four were relocations (net 25 after one closure), and on track to open at least 46 net new B&M UK stores this financial year

Heron Foods has continued to “trade well” and opened 10 gross new stores (net nine after one closure), and on track to open at least 20 gross new stores this financial year

However, it experienced “continued disappointing financial performance in Germany”, due to distribution issues and weak sales performance.

As such, it has launched a strategic review to determine the future of the business

Its newly acquired French Babou business made “important progress” in period to evolve its product offer at with the first three B&M branded stores opened in France. After a year of ownership, progress has made on the integration of Babou with the clearing of old stock and introduction of a number of directly sourced new product ranges

Group adjusted EBITDA increased by 5.7% and on a post IFRS basis by 12%.The B&M UK stores business adjusted EBITDA grew by 13.7% to £137.3m.

However, group profit before tax decreased by 70.5% to £32.2m largely due to an impairment charge of £59.5m relating to its German Jawoll business.

CEO Simon Arora commented: “We have delivered a solid overall first half performance driven by our core B&M UK stores business which constitutes 86% of group sales. Our existing stores performed consistently well through the last two quarters, generating half year LFL of 3.7%. The current crop of new stores also achieved especially strong results. The core business has made a solid start to the second half of the financial year.

“We are well placed for the golden quarter in our main B&M UK stores business. Despite the continued uncertainty in the economic environment generally, we are very proud to say that each of the top five store opening days in our history have all been in stores we have opened in the last 12 months.”

On the markets this morning, the FTSE 100 has opened up 0.2% to 7,346.2pts.

Premier Foods has jumped 8.7% to 36.2p, its highest level since early summer. B&M is down 8% to 348.5p on the surprise writedown of its German business.

Other risers include PayPoint, up 1.8% to 926p, Marston’s (MARS), up 1.2% to 123.2p and Devro (DVO), up 0.9% to 161.4p.

Fallers include Nichols (NICL), down 2.6% to 1,559.1p, Tesco (TSCO), down 2.1% to 232.7p and Marks & Spencer (MKS), down 2.1% to 184.5p.

Yesterday in the City

The FTSE 100 stared the week on the back foot, dropping 0.5% to 7,328.5pts as slightly weaker than expected UK quarterly growth of 0.3% and a credit ratings downgrade from Moody’s hit confidence.

However, one of the big City success stories of the day was Greggs (GRG), which surged back 16.5% to 2,064p after announcing it expected full year profits to be higher than initially expected due to strong recent sales.

Other risers included Naked Wines (WINE), up 3.7% to 264p, Stock Spirits Group (STCK), up 2.8% to 204.5p, Glanbia (GLB), up 2% to €11.53, Marston’s (MARS), up 1.8% to 121.8p, Hilton Food Group (HFG), up 1.6% to 1,038p and Sainsbury’s (SBRY), up 1.5% to 204p.

The day’s fallers included Ocado (OCDO), which slumped back 7.4% to 1,102p, while DS Smith (SMDS) dropped 1.8% to 376.7p, FeverTree (FEVR) was down 1.4% to 1,758p, McBride (MCB) fell 1.3% to 75.6p and FTSE 100 giants Unilever and Reckitt Benckiser both dropped 1.3% to 4,614p and 5,833p respectively.