UK Grocers Report as Discount Retailers Benefit from Inflation

According to the latest industry figures, the UK's leading grocery retailers saw record customer numbers over the Christmas trading. However, the ongoing cost-of-living crisis has left its mark, with discount retailers likely benefiting most significantly from the festive season's trading.

Lower Prices Remain King

As the country's largest food retailers prepare to announce their results for the Christmas trading period this week, Kantar has issued its monthly grocery market update. While overall spending was up, indicating growth for the sector as a whole, there were distinct variations in performance between companies. UK shoppers visited grocery stores more frequently this year than in pre-pandemic periods, spending £13.7 billion in December compared to the £13 billion forecast. Total grocery sales increased 7% in value, with price inflation moderating to 6.7% - the lowest level since April 2022.

Discount Retailers Perform Strongly

Discounters Aldi and Lidl saw particularly strong sales growth of 9.9% and 13.9% during the period, respectively. Sainsbury's performed well with 9.3% growth, followed closely by Tesco at 7.5%. Retailers perceived as offering higher prices, such as Morrisons and Waitrose, underperformed relative to competitors. This could foreshadow challenges for Marks & Spencer, which is not included in Kantar's data set. Mastercard's payment data also showed that while sales values increased, volumes fell by 4.1%, underscoring the impact of inflation. Both Kantar and Mastercard concur that Sainsbury's achieved the best overall sales and market share growth during the season. Sainsbury's shares were up 33% last year.

Outlook Remains Uncertain

Kantar reported that nearly one-third of total spend was on discounted items, the highest level since the pandemic's peak, demonstrating shoppers' intense focus on value. Private-label brands also outperformed branded goods.

Sainsbury's is scheduled to report its results on Wednesday, followed by Tesco and M&S on Thursday. Sainsbury's like-for-like sales are forecasted to have grown 7.6%, though weaker clothing sales may offset grocery growth. Tesco also anticipates 7.5% comparable sales growth but faces potential profit pressures from market share initiatives. So, all eyes will be on M&S's outlook statements as the retailer has signalled an intent to moderate expectations heading into the Christmas period.NIQ reported that M&S's food sales grew at 12.1% during Christmas, outperforming all others except Lidl.

M&S Trend Accelerating

M&S has recently broken past the upper channel's trendline, suggesting an accelerated move towards $355 if prices remain outside the channel's bounds. Below there, bulls may face resistance by $315. Conversely, reentering the channel could indicate a shift in market sentiment, with $260 acting as short-term support above $210.

Source: SpreadEx / M&S

Key Takeaways

The UK grocery sector saw record spending at Christmas, with £13.7  billion spent in December. Discount stores Aldi and Lidl saw robust sales growth due to the cost-of-living crisis as consumers sought value. Sainsbury's led in sales and market share growth while high-priced stores Morrisons and Waitrose lagged. But almost a third of spending was on discounted items, emphasising savings. While Sainsbury's and Tesco are set to report strong sales growth, the outlook remains cautious due to concerns about profit pressures and non-grocery segments. Although not covered in recent grocers’ updates, M&S saw exceptional food sales growth, and there is interest in its upcoming results and strategy.