Supermarket sales growth remains at its highest level since June 2020

UK supermarkets are continuing to see the highest industry sales growth since the summer of 2020 as booming online sales mitigated a small drop in physical stores.

According to NielsenIQ, total till sales for the four weeks to 27 February grew by 10.6% year on year – same figure from the previous four week period and the highest level since June 2020 when sales growth peaked at 14%.

British shoppers spent £1.5bn on online groceries during the month, with the online share of grocery sales now reaching 17%, which represents the highest ever share for online grocery sales in the UK.

The number of British households shopping for their groceries online has more than doubled in the last year, reaching 41% compared to 18% at the same point in 2020. This is equivalent to 11.8m households and is a 132% increase in sales compared to the same period last year.

In contrast to this, sales at bricks and mortar stores declined by 1% year on year in the last four weeks.

However, NielsenIQ found that in the one week period ending 27 February, consumers are now spending less on those essential items that were previously involved in mass purchasing.

This includes sales of rice and grains (-15%), dry pasta (-18%), canned or packet soup (-19%) and toilet rolls (-12%) which have all declined in sales since the pandemic panic buying began in the UK.

“This reflects the fact that sales for these items first shot up this time last year as discussions of a lockdown began, and one year on, we now see the tide beginning to change as British consumers look ahead to restrictions lifting,” Nieslen said.

In terms of retailer performance, Lidl (21.2%) has shown the strongest growth over the last 12 weeks, as the discounter continues to benefit from its Lidl Plus loyalty app – and notably outstripping Aldi’s sales growth of 7.5%.

Iceland (17.5%) also followed with strong sales growth, whilst Morrisons (11.7%) continues to grow faster than the other ‘big four’ retailers. Tesco and Sainsbury’s grew by 9.5% nd 8.7% respectively, while Asda was the weakest big four player, with sales growth of 6.8%.

Marks & Spencer saw a drop of 0.4% during the period, while Co-op was up a modest 4.5%.

Mike Watkins, NielsenIQ’s UK Head of Retailer and Business Insight, commented: “One year on since the pandemic began in the UK it’s evident that a lot has changed in terms of consumer shopping patterns. Online grocery has now become a permanent fixture for many UK shoppers - it is now past the ‘tipping point’ and is at the ‘sticking point’.

“Consumers no longer feel like they have to shop online, but do so because they prefer to, particularly now that many retailers have expanded fulfilment capacities. Even when we exit lockdown and start to return to some normality, we anticipate that online demand will continue to grow ahead of the market.”

Morning update

UK retail sales returned to growth in February on a total basis, rising 1% in February compared to growth of 0.1% in the same period in 2020.

The BRC-KPMG Retail Sales Monitor for February found that UK retail sales increased 9.5% on a Like-for-like basis from February 2020, when they had decreased 0.4% from the preceding year.

Over the three months to February, in-store sales of non-food items declined 38.9% on a total and 21.4% on a like-for-like basis – albeit this is better than the 12-month total average decline of 31.4%.

Over the three months to February, Food sales increased 7.6% on a Like-for-like basis and 7.9% on a Total basis. This is higher than the 12-month Total average growth of 6.6%.

Online Non-Food sales increased by 82.2% in February, against a growth of 3.6% in February 2020.

BRC chief exec Helen Dickinson commented: “February saw a return to growth after a disappointing start to the year. The Prime Minister’s roadmap to reopening prompted a burst in spending on non-food items, such as school uniforms. Furthermore, with another month of lockdown still to go, online sales were high, rewarding the retailers who have invested digitally.

“While the uptick in sales is encouraging, many retailers are concerned about the months ahead. Many retail businesses will be hoping that customers will return to shops, and have spent hundreds of millions on making their premises Covid-secure, but previous reopenings have shown that demand can be slow to come back. Government has a vital role to play in building up consumer confidence across the country to power the spending-led recovery.”

Susan Barratt, IGD CEO added: “Food and drink sales remained strong in February with supermarkets continuing to benefit from the ongoing closure of non-essential retail and the out-of-home sector. Furthermore, sales were boosted by Valentine’s Day as shoppers splashed out on treats and gifts.

“However, from now this growth trend will face much tougher comparisons versus the onset of panic buying in March 2020. Nevertheless, the value of the grocery market is still unlikely to return to a more usual level until lockdown restrictions start to ease and a more normal consumer landscape is restored.

IGD’s Shopper Confidence Index improved for the second month running in February, reaching its highest level since January 2020, with confidence buoyed by the planned easing of lockdown restrictions and the swift rollout of the COVID-19 vaccination programme.

Barratt said: “This boost will likely continue in the short-term as more people are vaccinated and the further extension of financial support for sectors impacted by the pandemic. However, confidence is likely to remain fragile among lower affluence groups.”

On the markets this morning, WH Smith has announced it has successfully extended its bank financing arrangements with its existing banks.

It has extended the maturity of its two existing £200m loans to October 2023 and agreed a new minimum liquidity covenant for both the August 2021 and February 2022 covenant tests.

It said these changes have enabled the Group to cancel its existing £120m liquidity loan which was undrawn and due to expire in November 2021.

Meanwhile, it said it is delivering a better than expected performance so far this year despite the lockdown and closure of much of UK retail.

Despite reduced footfall, revenue in its High Street business in January 2021 was at 74% of 2019 levels and 84% of 2019 levels in February 2021, ahead of expectations.

Within its High Street business, it continues to see significant growth from its online businesses, with online greeting cards business, funkypigeon.com, seeing record sales for the Valentine’s day period.

In Travel, it continues to see the same broad trends, with total revenue in January 2021 was 35% of 2019 levels and 33% of 2019 levels in February 2021. North America continues to be its best performing market in the sector.

As a result of our better than anticipated trading performance since the start of January 2021, cash burn has improved. The group now expects the monthly cash burn over the period January to March 2021 to be approximately £12m-£17m versus the previously guided £15m-£20m per month.

WH Smith will announce its interim results on 29 April 2021.

One business to have benefitted from the pandemic is Domino’s Pizza Group, which this morning has posted bumper annual sales and profits.

The group posted enjoyed strong performance in its core UK & Ireland markets, with system sales up 11.4% to £1.35bn and like-for-like system sales, excluding splits, up 10.3% (9.3% including splits)

The like-for-like growth came despite the stopping of collection orders in the initial lockdown, which accounted for 21.3% of ales and 31.1% or orders in the previous year.

Instead, the performance of its delivery business during the year was very strong, more than offsetting the lack of collection business at a sales level.

However, at an order count level, the 10.3% rise in delivery order volumes did not fully offset the lack of collection orders, which were down 41.9%, resulting in total orders declining by 6% in the year.

UK online sales were up 23.9% and app sales up 26.2%, with online sales now accounting for 94.3% of delivery sales in UK.

Domino’s incurred incremental costs of £9m in the year in order to trade safely, including costs associated with the changes necessary in its supply chain, the provision of safety equipment and community support costs.

That was mitigated by the VAT rate reduction introduced by the UK government in July 2020. The estimated VAT benefit is £3.6m in year such that total net cost directly attributable to Covid-19 in the year is £5.4m.

Underlying profit before tax was up £2.4m to £101.2m, despite the Covid-19 costs.

Statutory profit after tax jumped to £39.7m up from £2.8m, as non-underlying charges reduced to £2.1m from £21.8m last year and the and loss on discontinued international operations reduced to £42.5m from £56.5m.

Domino’s said trading in the current financial year has “started strongly” with exceptional trading over the new year period as it recorded its highest ever sales week. Its delivery business continues to perform “very well”, and collection remains at around 60% of 2019 levels.

Domino’s said the current trends and demand expectations, in addition to the investment in capabilities it has and is making, “gives us confidence in delivering further operational and financial progress in the coming year”.

CEO Dominic Paul commented: “I am pleased with the performance we’ve delivered this year, and grateful to everyone across the system for their commitment during this extraordinary period. We’ve worked successfully in partnership with our franchisees to continue to operate safely through the various lockdowns and play our part in feeding the nation during the pandemic, while supporting our colleagues and key workers. We have continued to invest and innovate across the business, launching exciting new products such as our vegan pizza and investing in technology, with our new App, in the supply chain and in marketing to further strengthen the brand.

“At the same time, we have been looking to the future, and today we are announcing a multi-year strategic plan which will drive growth across the business and deliver an exciting and profitable future for both our shareholders and our franchisees. In my first year with Domino’s, it has been clear to me that we have a great platform to build from - a uniquely powerful brand, high digital participation and outstanding people and franchisees. Our new strategy will enable us to build upon our strengths in both delivery and collection and provide our customers even better quality and value, which will drive continued strong performance. We have maintained an open dialogue with our franchisees throughout the development of this plan and, while we do not have an agreement yet, we have made an attractive offer to them which we believe will deliver powerful benefits to both them and the Group.

“As the economy begins to reopen, we have invested in our capabilities to enable us to capitalise on the substantial opportunities ahead. I am confident that we can achieve our vision of being the UK and Ireland’s favourite food delivery and collection brand, and deliver great results for our colleagues, our customers, our shareholders and our franchisees.”

The plan is expected to deliver medium-term total system sales of between £1.6bn to £1.9bn.

The new strategy is centred on; accelerating growth of delivery business by opening an additional 200 stores, turbo-charging its collection business to double market share, amplifying product quality and value, and enhancing digital and brand marketing capabilities.

Finally this morning, the British Honey Company has announced the appointment of Matt Fletcher as chief operating officer.

This newly created position within BHC’s senior leadership team, reporting directly to the board, follows the successful acquisition of Union Distillers last month which has significantly enlarged the group.

Fletcher joins BHC from The MidCounties Co-Operative where he was head of direct sourcing, responsible for building a portfolio of over 250 suppliers across 54 categories. He previously held senior management positions at Holland & Barrett International and House of Fraser.

In his new role, Fletcher will report directly to BHC’s board and will lead the manufacturing and operations teams.

CEO Michael Williams commented: “We are delighted to welcome Matt to BHC. The Company has known him professionally for a number of years in his capacity at MidCounties Co-op so we are well aware of his capabilities. BHC’s Business Model is underpinned by leading edge technology with connectivity to an ever-increasing number of online sales and social media platforms where Matt’s knowledge and experience of EDI coupled with his strategic planning and Project management expertise will be of great benefit to the business.”

On the markets this morning, the FTSE 100 is up 0.1% to 6,724.1pts after a dip in early trading.

Domino’s Pizza Group has jumped 10.4% to 342.8p on this morning’s results, while WH Smith is up 1.1% to 1,925.2p. Other risers include Pets at Home, up 3.1% to 389.8p, Sainsbury’s, up 2% to 230.7p and McBride, up 1.5% to 80.4p.

The day’s fallers include Nichols, down 3.1% to 1,182p, McColl’s Retail Group, down 2.6% to 31.4p and Naked Wines, down 1.9% to 656p.

Yesterday in the City

The FTSE 100 started the week firmly on the front foot, rising 1.3% to 6,719.1pts.

Risers include Nichols, up 6.8% to 1,220p, Finsbury Food Group, up 4.8% to 83.8p, Just Eat Takeaway.com, up 4.7% to 6,682p, Coca-Cola European Partners, up 4.6% to €45.20, McColl’s Retail Group, up 3.2% to 32.3p, Hotel Chocolat, up 2.5% to 410p, Marks & Spencer, up 2.5% to 149.1p and Compass Group, up 2.5% to 1,584.5p.

The day’s fallers included City success stories during the COVID epidemic, Naked Wines, down 4% to 669p and B&M European Value Retail, down 3.2% to 520p.

Other fallers included AG Barr, down 2.9% to 495p, Hilton Food Group, down 2.4% to 1,068p and PayPoint, down 2% to 584p.

Supermarkets Morrisons and Tesco started the week on the back foot, falling 2.2% to 172.1p and 1.9% to 219.8p respectively.