Supermarkets optimistic about Christmas as inflation eases consumer spending

Supermarkets in the UK are anticipating a successful Christmas period, buoyed by an easing of inflation that has begun to positively influence consumer spending habits. After experiencing significant inflation rates earlier in 2023, consumers are now reportedly feeling the benefits, leading them to indulge in more premium grocery options.

As inflation had reached as high as 17.5% in March this year, it has now significantly decreased to just 2.3% in October, contributing to a renewed confidence among shoppers. This shift in consumer behaviour is reflected in the increased sales of premium own-brand products. Sainsbury’s CEO, Simon Roberts, acknowledged that nearly two-thirds of the retailer’s larger grocery shops now include items from its premium Taste the Difference line. According to Kantar data, sales of premium own-label products have surged nearly 16% year-on-year, while sales of value own-label goods have fallen by 10%. This reflects a marked change from 2021, when many consumers prioritised affordability over premium options due to skyrocketing food prices.

While the uptick in premium product sales indicates a willingness among consumers to spend more, the landscape of grocery shopping remains complex. Recent data from NIQ highlights Ocado as the fastest-growing retailer, with a remarkable 15.9% sales increase in the 12 weeks leading to October 5. Similarly, Marks & Spencer (M&S) reported a 12.4% rise in sales, signalling a strong performance in higher-end grocery offerings. Waitrose, which had struggled previously, also gained market share for the first time in over two years, according to Kantar.

Conversely, the discounter Lidl reported record market shares, illustrating that value-seeking behaviour persists among consumers. Aldi UK’s CEO Giles Hurley noted that shoppers are increasingly opting for its premium own-brand items, such as Wagyu steak and artisan cheeses, reflecting a trend toward elevated culinary experiences.

Despite indications of consumers trading up, challenges remain. The disparity between budget and branded products is narrowing, as reflected in Kantar’s insights. Although consumers show an openness to exploring premium options, many may not feel entirely comfortable pivoting back to higher-priced brands, particularly since food price increases from the past two years remain embedded in the market.

Meanwhile, the Office for National Statistics revealed a slight decline in food store volumes, down by 0.7% in October. This statistic raises concerns about the potential impact of rising dining-out trends, which, according to food retail adviser Katharine Shipley, could pose a significant challenge to supermarket sales. Supermarkets have reacted by enhancing their hot food and ready-to-eat options, with M&S expanding its dine-in offers and Waitrose introducing new food-to-go ranges.

In light of these changing habits, specific retailers are positioning themselves to attract consumers seeking both value and indulgence. M&S is working to effectively communicate its value credentials while Waitrose’s revamped No. 1 range aims to cater to customers willing to spend a bit more on high-quality products.

However, uncertainties loom as consumers and retailers react to the recent Budget announcement, which has raised concerns about further food price increases due to higher National Insurance contributions. Sainsbury’s Roberts indicated that this could necessitate tough decisions regarding prices.

Despite these challenges, optimism remains for the festive season. Asda Chairman Lord Rose expressed confidence that, following a turbulent year, consumers are eager to celebrate Christmas, despite budgetary concerns. He noted a sense of a “runway ahead” for consumers looking to reconnect with family during the holiday season.

While the landscape of grocery shopping continues to evolve, it remains clear that supermarkets offering a blend of affordable and premium options stand to benefit from shifting consumer behaviours this coming Christmas.

Source: Noah Wire Services