Sales at the UK grocery multiples (supermarkets) reached a record breaking £4.8bn during the week ending 23rd December 2023.

This is a +4.3% uplift in sales compared to Christmas in 2022, reveals data released by NIQ.

And volumes increased by 1.2% as shoppers traded up at this busy time of year.

NIQ data shows that UK shoppers took advantage this year of a full week of trading with the opportunity for extra supermarket visits up to Christmas Eve.

Over the four weeks to the 30th December and across all channels, shoppers spent £657m more on groceries compared with the same period the previous year.

Mike Watkins, NIQ’s UK Head of Retailer and Business Insight, tells Grocery Trader what drove the spend and what are his grocery market predictions for 2024.

From the major multiples point of view how was how was the Christmas performance this year?

It was a very good Christmas for those retailers who had been performing well during 2023. Those are M&S, Sainsbury’s, Tesco and the two discounters. But it was also a strong end of the year for Ocado. So I think what we saw was the ones who were performing well had that momentum. And they kept that running and really, shoppers spent a lot more with those five retailers in the month of December. And within that, we know that shoppers have been holding back some spend early in the quarter, saving money on call essentials to have the cash to fund some Christmas expenditure.

Second, and this is actually quite important, it was a strong month of December for online. Online typically peaks just before Christmas because people have to plan delivery slots and all that sort of stuff. So we call it omni channel Christmas because for the first time probably for 2023, it was perfectly clear that shoppers are including online as part of their regular repertoire of stores used. So online was back into growth during 2023, if you remember the pandemic comparisons, all that sort of stuff. Online market share of FMCG stabilised and we saw progressive growth but what was different about December is there were not more shoppers going online than we normally see but there were more items in the shopping basket. And we know that’s a combination of different types of behaviour. When you shop online, you’ve got the combination of big grocery shops, you’ve got the click & collect opportunities for smaller baskets, you’ve got the quick commerce edition and you’ve got the likes of Tesco Whoosh who have really ramped up delivery across the UK for one hour delivery. So all of those are adding to a strong online performance.

Thirdly, and this was actually probably the most important thing I guess, promotions reached a four-year high so promotions started to increase in the second half of the year as inflation started to slow. Retailers were passing through the price cuts, the majority of those savings were coming through on loyalty cards, Nectar, Clubcard and Morrisons. That’s really had a massive impact. When we surveyed shoppers at the end of the summer, we anticipated this because there were four ways that shoppers were saying they’re managing their spend during the summer and that carried on for the rest of the year. There was loyalty points, spending money at retailers, who were giving those points back. I think Nectar Prices were launched back in April and by mid-summer Sainsbury’s extended it and it was having a massive halo impact. Shoppers were buying more private label, that obviously did well. Shopping more often at value retailers – we’ve seen that with the continued growth of Aldi and Lidl.

And as we’ve always said, shoppers have been monitoring very closely the cost of their shopping basket. The four-year promotional high that we reported is not just a bounce back from the low point of the pandemic. It’s actually a genuine return to promotions with a small p driven by price cuts that were benefited by inflation coming down. But also the mechanics chosen by the retailers and supported by brands is the savings on the loyalty scheme, the lower prices.

And last, but not least, we all had good volume increase during December. You saw that reported from Sainsbury’s, Tesco and Marks & Spencer. We had two years of falling volumes across the industry, that’s across all retailers, not just the grocery multiples, it’s across convenience stores, independent retailers. The volume increases have been there for some time with the likes of Aldi and Lidl. Clearly they didn’t grow market share, but there was strong volume increase for those grocery mults who performed well. And that’s quite important because that sets us up for a more optimistic outlook for the second part of 2024. Certainly, from Spring onwards, where we are expecting volume increases across the industry to be positive.

There were a couple of retailers who did less well, Morrisons and Asda, but across all of the markets, that was a bit of a tipping point. I would say it was a considered Christmas by consumers. I say that because we know that 20% are saying they still feel very constrained and limited with spending. Another 50% are really cautious. The polarised consumer was really affecting Christmas spending as well.

Which categories did well and which ones struggled?

The highest growth category, we call it super-category, is confectionery. Sales grew 70% in value terms, there is a lot of inflation still in sugar-based categories, but the volumes were up in confectionery for the month of December. So that’s part of affordable treats, if you like, people were indulging. Conversely, the lowest super category growth was beers wines and spirits, that grew across the industry by only 1.6% and volumes were down. That’s one of the categories where clearly people were being a little bit more cautious and reined in some of the spend across the piste. Other categories doing well were crisps & snacks and soft drinks. Traditional categories do well at Christmas, again shoppers found the money for that. Ice cream is a good example, ice cream sales were up 15% at the major supermarkets in December, not just because of the dairy based product with inflation but people were actually using that as a nice treat for the festive period. Importantly, fruit and veg – there were a lot of price cuts on those categories in December: 19 pence or 15 pence for carrots. That drove volume and people did buy a lot more produce – volumes were up. I think that’s a good example where retailers were able to get some incremental spend by price cuts.

Private label did well. How do you account for that?

It’s been doing well all year. I think throughout 2023 private label growth was five percentage points ahead of branded growth and some branded growth is actually down. So that differential was maintained. Clearly, there were some brands that did very well during Christmas but across all brands, we saw private label outperform brands and we saw premium private label outperform brands as well. So, people were trading up. If we think about the retailers who had a high proportion of sales in private label, they are the Tesco, Sainsbury’s, they are the discounters and they certainly are Marks & Spencer. They have a high proportion of private label, and those retailers did well so that would also drive premium private label.

That’s an interesting one, we are working through those numbers in terms of premium private label. That’s not a surprise, but it’s just a reinforcement of how shoppers have increasingly considered a Taste the Difference or an Extra Special or Tesco Finest as not just good value for money but good quality as well and they were prepared to actually spend money on that during the Christmas period.

Of the retailers that did well, what did they do right and of the ones that struggled, what did they get wrong?

It’s really the same as saw throughout most of 2023. Asda and Morrisons had a weaker trading than the other top four supermarkets, Tesco and Sainsbury’s being the other two. A lot of that is based upon retailers needing momentum. To be fair to Asda, they had a strong mid to late 2022 when they relaunched and they launched Asda Rewards and they had some tougher comparatives. Morrison’s have a very strong proposition on fresh foods, meat, fish, poultry, and that was a category during 2023 which was really under pressure due to inflation. The demographics of Morrisons shoppers are more towards the family, lower income families and they may not have the money to spend as much on those particular categories. So, it’s a combination of retailers having the momentum and the year ago comparatives. We know that Sainsbury’s and Tesco have a higher share of sales in London or in other areas where there’s more affluence. I wouldn’t overplay that, but the other thing about Asda and Morrisons, again this is down to geography, Aldi and Lidl have been very strong in some of the core trading areas in northern England as well.

What is NIQ’s perspective for 2024 in the grocery market in general? Are you predicting growth and what are the general trends you are looking at?

I can confirm that we knew the top line growth, value sales growth, money through tills in calendar year 2023 was 7%. In quarter four, as inflation slowed, it came down to 5.3%. That 5.3% is really important. We see that as the landing point for sales growth for most of them in 2024. It’s possible, if food inflation falls further, that by the end of the year, that will bring the growth a little bit under so we’re seeing nothing like the growth we used to see pre-2020. Around 2019 we had some two or three years of really quite low deflation, it was a low growth industry of 1 or 2%. We went from that to the pandemic peaks, heavy inflation peaks. 5% is the line of sight for the top industry growth, that assumes food inflation of around 3 or 4%. So that implies around 1% volume growth. We have had two years of volume declines so to get back to that volume growth is going to be quite important. The timing of that is difficult to call. We always say that after Christmas is a tough period. Shoppers are saving money and I think we’ll see that again this year. We are up against some quite high comparatives in top line growth because inflation was accelerated in the first part of 2023. So mathematically, if the industry has grown at let’s say 8 or 9% in quarter one last year, and it’s grown at 4 or 5% at the moment, you can see it’s going to be quite tough to outperform until we get to the second part of the year when you get the reverse story

 

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