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UK retail sales increased 2.3% in July on a total basis, according to the BRC-KPM Retail Sales Monitor, though sharply rising prices masked a drop in sales volumes.

Total sales growth of 2.3% was down from the 6.4% recorded in July 2021 and below the 12-month average of 2.7%.

On a like-for-like basis, sales were up 1.6% from July 2021, when they had increased 4.7%.

Over the three months to July, Food sales increased 2.3% on a total basis and 1.8% on a like-for-like basis, which was above the 12-month total average growth of 0.6%.

Non-Food retail sales decreased by 2.0% on a total basis and 2.5% on a like-for-like basis over the three months, which was down on average growth of 4.5% over the past year.

In-store sales of non-food items increased 2% on a total basis and 1.2% like-for-like, while online non-food was down 3.9% in July.

BRC CEO Helen Dickinson commented: “Sales improved in July as the heatwave boosted sales of hot weather essentials. Summer clothing, picnic treats, and electric fans all benefitted from the record temperatures as consumers made the most of the sunshine.

“However, with inflation at over 9% many retailers are still contending with falling sales volumes during what remains an incredibly difficult trading period.

“Consumer confidence remains weak, and the rise in interest rates coupled with talk of recession will do little to improve the situation. The Bank of England now expects inflation to reach over 13% in October when energy bills rise again, further tightening the screws on struggling households. This means that both consumers and retailers are in for a rocky road throughout the rest of 2022.”

Paul Martin, UK Head of Retail at KPMG, added: “Against a backdrop of the cost of living crisis and on-going reports of low consumer confidence actual sales are still holding up. Online retailers also saw the benefit of warmer weather with sales growth falling more slowly, by just 3.9% on July 2021.

“Despite consumer polls suggesting confidence is at an all-time low, this hasn’t translated to money not being spent at the tills, as consumers are determined to enjoy delayed holidays and an unrestricted summer.

“However, the summer could be the lull before the storm with conditions set to get tougher as consumers arrive back from summer breaks to holiday credit card bills, another energy price hike and rising interest rates. With stronger cost of living headwinds on the horizon, consumers will have to prioritise essentials, and discretionary product spending will come under pressure. As margins continue to be challenged, and costs continuing to rise, a significant drop in demand come the Autumn will have detrimental impact on the health of the retail sector. Truly understanding individual customer buying patterns and being able to differentiate these will become increasingly more important for the sector.”

IGD CEO Susan Barratt said of the food and drink sector: “July’s food and drink value sales were again flattered by inflation, masking some ongoing dips in sales volumes. Shoppers are genuinely tightening their belts by buying fewer items in addition to switching stores and buying more private label products.

“With food price inflation forecast to increase in the coming months and Ofgem expected to announce a significant increase in the energy price cap at the end of August, there are still significant challenges ahead.”

Morning update

Coca-Cola HBC has agreed a deal to acquire Greek mixer brand Three Cents from Ideal Holdings for an enterprise value of €45m.

CCH said that Three Cents is a popular super-premium mixer product line, offering artisanal beverages crafted without preservatives or artificial colourings.

Three Cents was founded in 2014 by founders George Bagos, Dimitris Dafopoulos, George Tsirikos and Vassilis Kalantzis, a group of bar tenders and food and beverage professionals.

As part of the Transaction, its founding team will remain with the Company and will continue to promote the brand, “providing their leadership and vision”.

Since inception, the brand has established itself as a super-premium, adult sparkling beverage and mixer for long-drinks and cocktails.

Completion of the transaction is expected in the second half of 2022 and is subject to customary closing conditions and regulatory approvals.

CCH said the adult super-premium sparkling beverage and mixer category represents an “exciting growth opportunity and is an important pillar of Coca-Cola HBC’s 24/7 beverage partner strategy”.

The group said it caters to a growing range of consumer tastes and consumption occasions with one of the broadest and most flexible portfolios in the beverage industry.

“Well-positioned for the super-premium segment, Three Cents will complement Coca-Cola HBC’s existing adult sparking beverage portfolio, which includes the established adult brands, Schweppes and Kinley,” it stated.

AIM listed consumer products group Supreme has announced the purchase of trade and assets of Cuts Ice and Flavour Core.

Cuts Ice is an independent vaping manufacturer with major own brands as well as OEM manufacturing contracts, and Flavour Core is a flavour development and regulatory compliance business in e-liquids.

Cuts Ice has also developed a leading vape brand ‘T Juice’, which has successfully developed a single flavour ‘Red Astaire’, which has achieved significant brand recognition in key European markets.

Supreme said the acquisition, whilst delivering a number of integration synergies, will see the group acquire a renowned vaping brand alongside absorbing vape flavouring and mixing expertise.

In addition, Cuts Ice has established a growing European sales footprint, with the majority of sales being to continental Europe, including France, Germany, Italy, Spain, Belgium, which will add geographic diversity to Supreme’s more UK-centric vaping division.

The acquisition is also in line with the company’s strategy to support a tobacco free society by offering both credible and safer alternatives for nicotine consumption.

The undisclosed cash consideration will be satisfied from existing resources, and the acquisition is expected to be immediately earnings enhancing at an adjusted EBITDA level for the group.

CEO Sandy Chadha commented: “We are delighted to be acquiring assets from Cuts Ice and Flavour Core, a highly innovative and hugely popular brand both in the UK and across Europe.

“We continue to see significant growth from within our vaping activities and see this transaction as an excellent example of how we can continue to add both scale and expertise into the group.”

Elsewhere, consumer card spending grew 7.7% in July compared to the same period in 2021, and by 1.6% compared to June 2022, as Brits spent more on clothing, beauty and domestic holidays as the summer holiday period began.

However, consumers are starting to cut back on overseas travel and eating and drinking out, as disposable income falls and wage growth is outpaced by inflation.

Data from Barclaycard revealed that spending on essential items rose 7% year-on-year, greater than the 4% rise recorded in June.

The increase was driven largely by fuel and supermarket shopping, both of which saw year-on-year growth (29.9% and 2.1% respectively), as the prices of petrol, diesel and everyday items continued to climb.

Meanwhile, average spending on utility bills rose 43.9% year-on-year, even higher than last month’s growth of 39.6%.

At the supermarket, almost nine in 10 (89%) Brits report seeing increases in the prices of everyday items, with the majority noticing that butter (53%), milk (51%) and meat (47%) are more expensive than they were in June.

This comes as 45% of shoppers say they are looking for ways to get more value from, or to reduce the cost of their weekly shop. Over half (52%) of this group are paying closer attention to the prices of items they buy regularly, and the same proportion (52%) are cutting down on luxuries or one-off treats for themselves.

In addition, nearly two fifths (37%) are purchasing certain items on a need-to-buy basis to save money and avoid waste, resulting in an emerging trend for smaller basket sizes, and more frequent trips to the supermarket to restock when items run out.

The average value of a supermarket transaction has dropped from £23.67 in January 2021 to £19.33 in July 2022, while the average number of monthly supermarket purchases per person increased from 8.70 to 11.91 over the same period.

Meanwhile, spending on non-essential items rose 8% year-on-year, as well as 1.3% month-on-month, with a likely combination of inflation, the hot weather and summer and school holidays giving rise to increased discretionary spending across a range of categories.

José Carvalho, head of consumer products at Barclaycard, said: “July saw Brits get into the swing of summer by prioritising non-essential spending on staycations, new clothes and beauty products, while the heatwave gave an extra boost to the electronics sector, as consumers bought gadgets to keep cool.

“However, inflation continues to have a noticeable impact, with price rises forcing shoppers to spend more on essential everyday items such as fuel, butter and milk, and to cut back on some discretionary experiences such as meals and drinks out, and holidays abroad.”

“We know that this is a really challenging time for many consumers, so it is reassuring to see that more Brits are feeling confident about their household finances and ability to live within their means each month. This shows that, faced with difficult circumstances, many are finding ways to budget and manage their finances successfully, to cope with ongoing inflationary pressures.”

On the markets this morning, the FTSE 100 has opened flat this morning at 7,482.3pts.

Early risers include Hotel Chocolat, up 3.6% to 146p, Naked Wines, up 3.4% to 152p and AG Barr, up 2.7% to 556.8p.

Fallers include PayPoint, down 1.8% to 584.2p, Virgin Wines, down 1.4% to 70p and Coca-Cola HBC, down 1.4% to 1,929p.

Yesterday in the City

The FTSE 100 ended the day up 1.6% to 7,482.3pts yesterday.

Grocery risers included Hotel Chocolat, up 3.7% to 141p, DS Smith, up 3.2% to 290.2p, Deliveroo, up 2.7% to 94.6p, Coca-Cola HBC, up 2.4% to 1,956.5p, FeverTree, up 2.1% to 1,044p, Marks & Spencer, up 2% to 138.9p and Britvic, up 1.9% to 848.5p.

The day’s fallers included Virgin Wines, down 5.3% to 71p, Glanbia, down 4.5% to €11.40, Nichols, down 3.3% to 1,110p, Naked Wines, down 2.8% to 147p, Bakkavor, down 2.1% to 93p and Hilton Food Group, down 1.9% to 1,018p.