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New figures showing a decline in retail sales in both the UK and Ireland highlight the challenges faced by retailers, analysts have said.
Data from the British Retail Consortium (BRC) and accountancy group KPMG show that UK retail sales decreased in March to record their lowest three-month average in the last five years. Sales decreased by 1% on a like-for-like basis from March 2016, with first-quarter food sales also falling against the same period last year.
But KPMG also predicted an upturn in the sector’s fortunes, with a late Easter set to bring a welcome lift in sales.
BRC chief executive Helen Dickinson said: “First impressions of March’s sales figures are underwhelming, with the first decline since August last year. That said, the distortion which results from the timing of Easter always makes spring a tricky period to assess and the later timing of the holiday this year certainly detracted from last month’s performance.
“Food sales continue to outperform non-food sales as shoppers focus their spending on essential items. This marginal growth in food was bolstered by slightly higher shop prices following increases in global food commodity costs and a weaker pound. The pressure on prices continues to build, albeit slowly, and will inevitably put a tighter squeeze on disposable income and so to ensure consumers continue to enjoy great quality, choice and value on goods, securing tariff-free trade must be the priority as the Brexit negotiations begin in earnest.”
The head of Cargill, David MacLennan, recently made a similar call on the eve of the UK confirming its intention to leave the European Union.
Paul Martin, UK head of retail for KPMG, continued: “March proved a disappointing end to the first quarter for retailers, with like-for-like sales in the month down 1% on last year. Easter being later in the year is likely to have contributed to the bleaker picture, alongside the other obstacles facing the sector – especially increased input costs.
“Food sales remained in the black for a full quarter, although this is largely being driven by rising inflation, so no reason for too much celebration.”
‘Increasingly challenging for retailers’
But Hugh Fletcher, global head of consultancy and innovation for e-commerce consultants Salmon, said that the figures highlight the increasingly difficult landscape for retailers.
“The latest BRC-KPMG statistics highlight the increased challenge that high-street retailers face, yet online presented pleasant reading for vendors as online sales grew by 7.4% from the start of the year to March. Vendors must now look to combat declining high-street sales, embrace retailing events and turn to a strategy that enables online services to thrive,” he said.
“With the emergence of events such as Black Friday week, and the more traditional peak trading times of Easter and Christmas, there is no doubt that retailers can prosper in the hugely competitive sector. All in all, the monthly stats are unsurprising – vendors have to realise that they cannot remain stagnant and expect to catch-up with the likes of natural ‘e-tailers’ like Amazon, Asos and Boohoo. In a fast-paced industry, which is constantly evolving, technology-driven ideas will present shops with the opportunity to flourish and secure a larger share of shoppers who are increasingly craving an immediate, reliable and flexible shopping experience.”
‘Priorities are changing’
Rupal Karia, managing director of retail and hospitality in the UK and Ireland for technology company Fujitsu, added: “Overall the retail figures for March were disappointing, being the third consecutive month where sales failed to grow. During these more challenging times, consumers are evidently being more careful about their spending, hence the focus on more essential items such as groceries.
“What is notable however in the figures is that trips to pubs and restaurants increased, which highlights the fact that consumers’ priorities on what they wish to spend their money on is changing, preferring to spend it more on social activities and experiences.”
There will be relief that, despite a fall in food sales, inflation continues to remain positive; in the UK, the consumer price index (CPI) today recorded a 2.3% increase in the year to March, the same level of inflation as last month. Despite higher food and utility prices, this is also being countered by the timing of Easter.
Simon-Kucher’s James Brown commented: “One of the most immediate impacts for consumers will be food and drink. Food and drink prices are on the rise as exchange rate and commodity impacts hit. Last month we saw prices increasing year-on-year for the first time in over 30 months. Whilst the supermarket price war has helped delay the impact hitting shoppers, it can no longer contain the pressures driving prices up.
“With inflation squeezing consumers’ wallets, we expect some buying habits to change with people buying less, smaller or trading down. When it comes to buying less, ‘shrinkflation’ is already in the public eye – as well known products drop in size but not in price, and that’s a trend we expect to see continuing.
“Aldi and Lidl are well positioned to be winners from consumers’ wallets being squeezed by inflation. They’ve already grown rapidly in recent years as their low cost approach has found increasing favour with Britain’s shoppers, and we expect their combined market share of 12% to grow further in 2017 as more British shoppers look to trade down and go to lower cost supermarket chains.”
A return to deflation in Ireland
Separate figures from Kantar Worldpanel showed that the Irish grocery market slipped into deflation for the first time in almost two years, dropping 0.7% month-on-month to -0.2%.
The latest numbers reflect the impact of Easter on consumers and retailers alike. The holiday falls outside Kantar Worldpanel’s latest 12-week reporting period, while it fell in the same 12-week period last year. As a result overall growth in the market fell to 0.7% – significantly below the level during the same period in 2016, demonstrating Easter’s significance to the market.
The recent return to deflation has also contributed to the slowing of growth, the researchers said.
According to analysts, the weakened pound is having a delayed reaction on Ireland’s economy, and cheaper prices might not necessarily fall in retailers’ favours.
Kantar Worldpanel commercial director for Ireland David Berry said: “Only now are we are starting to feel the effect of the weakened pound following the EU referendum as the price of British imports drops. For the first time since May 2015 grocery prices are falling so consumers are likely to have a little extra cash to hand, though this doesn’t necessary mean they’ll spend more in store. Many will see the break from inflation as a chance to cut down their grocery costs and pocket the savings instead.”
Supervalu regained its position as Ireland’s largest grocer, having been narrowly beaten by Dunnes Stores for the past two months.
Berry continued: “The battle to attract shoppers remains fierce as ever as SuperValu makes its way back to the number one spot. After two consecutive months at the top, Dunnes was unable to remain Ireland’s largest supermarket for a third month with SuperValu finishing 0.3 percentage points ahead of the retailer.”
One of the main trends within the Irish grocery market this year is shoppers’ move towards own-label, which now accounts for 54% of total grocery spend – up 6% in the past four years. Discount retailers Aldi and Lidl are a major contributing factor, mirroring strong performance in the UK; their stock is predominantly own-label so they have driven growth, with shoppers now also more accustomed to seeing own-label ranges on shelves.
David Berry continues: “SuperValu and Tesco have both responded and expanded their own-label ranges. The retailers see this as a real opportunity for growth, with own-label lines offering them the chance to set themselves apart from the rest.
“However brands are still dominating in Dunnes Stores, with own-label accounting for just 38% of sales this year – up only 1% since 2013, much lower than its competitors.”
Despite losing market share, Dunnes still has reason to celebrate. Sales grew by 3.2% year-on-year – the 30th consecutive period of growth for the retailer.
Lidl’s success continues too as the retailer experienced a 3.7% increase in sales. Aldi remains Ireland’s fasting growing retailer with sales growing by 5%, managing to increase its market share to 11.3% and close the gap on nearest rival Lidl.
© FoodBev Media Ltd 2017