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UK supermarkets saw a double-digit jump in sales, as strong inflation and a recovery in sales volumes led to the industry’s biggest ever week in the run up to Christmas.

NielsenIQ data reveals that in the final four weeks ending 31 December 2022, total till value growth increased to 10.9% from 7.6% in the previous month.

Food inflation of 13.3% helped value growth and volumes were better than November, falling 1.5% due to more cautious household spending than last year.

However, in the week to the 24 December, value sales increased by 19% at the mults and spending topped £4.6bn, marking the highest spending week on record, and volume sales increased by 8.8%, helped by the full-week of trading.

Supermarkets experienced last-minute, in-store shoppers, with discounters coming out as “clear channel winners”, NielsenIQ said.

Over the longer 12 week period, Aldi was the fastest growing retailer with a 19.3% growth in sales and Lidl (15.7%) a close second. With over 18 million households visiting the discounters (equating for 63% of all UK households) - an additional 1.3 million on last year - new shoppers helped to drive discounter market share to 18.9% from 17.5% in 2021.

M&S and Sainsbury’s traded well over Christmas (up 8.5% and 9% over the 12 weeks) with shoppers visiting more often. Tesco’s Clubcard prices also helped drive sales (up 8%) and Asda (up 7.9%) continued to attract new shoppers. After a sales decline during 2022,

Morrisons’ growth turned positive in the last four weeks (down 1.1% over 12 weeks) and Ocado gained market share within the online channel (up 4.8%).

For retailers, Christmas 2022 was a very competitive season with some late, deep price cuts on seasonal vegetables for Christmas dinner, which encouraged shoppers to go in-store for fresh food.

With further price cuts to Christmas products, promotional spend on offer increased to 23% of all FMCG sales - the highest in 2022. Tesco increased its promotional spend using Clubcard to almost 30% - the second highest behind Waitrose at 31% - and ASDA recorded 16%.

Helped by the World Cup, beer, wines and spirits were back in growth during December up by 0.1% and growth was robust during the Christmas week at 11.6% as shoppers took advantage of festive promotions. During the Christmas week at the Grocery Multiples, incremental spend was led by desire to socialise with chocolate confectionery (£32m), fresh meat and cheese (£26m), milk (£22m), still wine (£20m) and crisps and snacks (£17m).

Nielsen data also revealed a 2.8% growth in online sales in December but lost share of all FMCG which fell back to 10.4% from 11.2% a year ago and 12.1% in 2020.

Mike Watkins, NielsenIQ’s UK Head of Retailer and Business Insight, said: “Despite inflation, the pressure on household spend impacted spend per visit which increased only slightly to £22.02 from £21.34 a year ago. Supermarkets also benefited from some very cold weather in early December and also from continued rail disruption, which may have held back some spend in the hospitality channels later in the month, helping food retailers to gain “share of calories consumed” from the out-of-home channels. Shoppers were still willing to buy extra Christmas indulgences but the performance of the industry was shaped by the cost-of-living crisis and the need to save on grocery shopping.”

“Looking ahead, weak confidence around personal finances and a squeeze on disposable income will have a big impact on demand over the full year. We estimate total food retail growth in 2023 to be around 5% (a total of £190bn across all channels). However, we also expect the recession to start to influence shopper behaviour and reframe overall retail spend.”

“2023 will be tough for households as 33% only have enough money for essential spending with just 5% able to spend freely. Consumers in the middle are those that live comfortably but still watch their wallets with the ability to buy things at will. The biggest impact on household income this year according to our Homescan consumer panel is inflation (68%), rising domestic fuel prices (65%) and rising diesel and petrol prices (51%). Even if inflation slows quickly, food and energy will still cost significantly more than 2 years ago so expect shopper caution to continue.

Morning update

Christmas boosted UK retail sales to end 2022, but the industry faces further headwinds in 2023, according to the latest figures from the BRC-KPMG Retail Sales Monitor.

Covering the five weeks to 31 December 2022, it found sales increased by 6.9% in December on a total basis (6.5%) like for like), against an increase of 2.1% in December 2021.

This was above both the three-month average growth of 4.4% and 12-month average growth of 3.1%.

For the whole of 2022, UK Total Retail sales increased by 3.1% from 2021.

Food growth was 3% and non-food growth was 3.2% for the year.

Over the three months to December, food sales increased 7.9% on a total basis and 7.7% on a like-for-like basis.

Non-food sales were up 1.5% over the same three month period and 1.1% on a like for like basis, which was below the 12-month average.

Online non-food sales decreased by 3.0% in December, against a decline of 13.9% in December 2021, while the non-food online penetration rate decreased to 42.3% in December from 44.3% at the same point a year earlier.

BRC CEO Helen Dickinson commented: “After an exceptionally challenging year which saw inflation climb and consumer confidence plummet, the uptick in spending over Christmas gave many retailers cause for cheer. Many consumers braved the cold snap and the strikes to ensure friends and families got the gifts they wanted, with energy-saving products, warm clothing and boots all selling well. Nonetheless, despite the stronger sales, growth remained below inflation, making December the ninth consecutive month of falling volumes.

“Retail faces further headwinds in 2023. Cost pressures show little immediate signs of waning, and consumer spending will be further constrained by increasing living costs. Retailers are juggling big cost increases while trying to keep prices as low as possible for their customers. And, from April, they will be hit with an additional £7.5 billion energy bill should the Government’s Energy Support Scheme expire. We hope the Chancellor’s announcement this week will provide the necessary extension, or further prices rises will be inevitable.”

Paul Martin, UK head of retail at KPMG, added: “Whilst the numbers for sales growth in December look healthy, with sales values up by nearly 7% on last year, this is largely due to goods costing more and masks the fact that the volume of goods that people are buying is significantly down on this time last year.

“Consumers shunned big ticket technology purchases in December, opting for energy efficient household appliances and Christmas mainstays of clothes and beauty items. Food sales were also strong, growing nearly 8% year on year as families gathered at home to make the most of an unrestricted Christmas. Despite the bad weather, and with postal strikes ongoing, shoppers opted to head for the high street to browse for Christmas presents, with online sales growth continuing to slide across a number of categories.

“With Christmas behind us, retailers are facing a challenging few months as consumers manage rising interest rates and energy prices by reducing their non-essential spending, and industrial action across a number of sectors could also impact sales. The strong demand across certain categories that has protected some retailers will undoubtedly fall away so we can expect high street casualties as we head into the Spring. This will present opportunities and some organisations will benefit from the current situation through market-share growth and consolidation opportunities that will arise. The first half of the year will be tough for retail and a case of survival of the fittest, but we expect to see demand increase as 2023 progresses.”

IGD CEO Susan Barratt said of the food & Drink sector performance: “December saw strong headline growth in food and drink sales, registering a notable acceleration over sales in November. With Christmas falling on a Sunday, the week ending Saturday 24 December delivered the biggest cash value ever recorded for a trading week in the sector. Despite this buoyancy, volumes in December were essentially flat, indicating that inflation continues to fuel growth. However, the flat volume number is an improvement on the rest of 2022, showing that Christmas still had the power to shift the direction of the market.

“The festive season provided some light relief with IGD’s Shopper Confidence Index registering its highest levels since July 22. However, with the Office for Budget Responsibility predicting the greatest drop in living standards, shoppers will undoubtedly continue to adapt their shopping behaviour to help them save money in the new year.”

Elsewhere, consumer card spending grew 4.4% year-on-year in December – slightly higher than November (3.9%) but well below the 9.3% rise in consumer price inflation.

Dad from Barclays said spending on essential items increased 5.1% in December 2022, though this was slightly lower than November’s year-on-year growth (7.1%), with spend on fuel seeing its smallest rise (10.6%) since March 2021, as petrol and diesel prices continued to fall.

Supermarket spend remained in growth (up 5.5%) however this was lower than the 6.5% growth observed in November. Food and drink specialist stores also fell back into decline (-0.2%).

As December’s cold snap led more households to turn up or increase their heating use, spending on utilities increased 40.6% – slightly higher than in November (40.1%).

Spending on non-essential items grew 4.1% year-on-year – the largest increase since July 2022.

Pubs, bars & clubs (up 12.6%) enjoyed their biggest uplift since May 2022, as Christmas parties and the FIFA World Cup boosted takings despite the impact of December’s rail strikes.

Restaurants, meanwhile, although still in decline compared to 2021 (-3.9%) saw a noticeable improvement compared to the year-on-year growth seen in November (-10.3%).

Similarly, the rush to buy gifts and Christmas party outfits benefitted clothing and department stores, which returned to growth in December, rising 1.5% and 2.8% respectively compared to -3.0% and -1.5% in November.

Overall, the uplift in non-essential spending year-on-year in December 2022 is in part due to the spread of Omicron in the run up to Christmas in 2021, which caused retail, leisure and hospitality to perform poorly at the time, thereby inflating 2022’s growth figures.

Esme Harwood, Director at Barclays, said: “The retail, travel and hospitality sectors all saw noticeable growth in December. Sports and outdoor retailers saw their largest increase since March 2022 as many Brits sought to get a head start on their January health kick. Meanwhile, pubs, bars & clubs benefited from Christmas parties and football fans watching the World Cup.

“However, it’s worth noting that these figures look more positive in comparison to December 2021, as the spread of Omicron kept Brits away from high streets and hospitality venues. It seems this year shoppers returned to the high street to make the most of the festive period despite the cost-of-living challenges.”

“The postal strikes hampered online retail due to fears of missing pre-Christmas delivery dates, while rising living costs caused more Brits to cancel their subscription services. Confidence in household finances saw a small jump, suggesting that consumers are feeling slightly more optimistic about their ability to balance their budgets going into the new year.”

On the markets this morning, the FTSE 100 has lost some of yesterday’s gains, falling 0.3% to 7,703.6pts.

Risers include McBride, up 4.6% to 22.9p, Virgin Wines, up 3.4% to 75.5p and Bakkavor, up 2.6% to 103.6p.

Fallers include Ocado, down 2.4% to 725.6p, THG, down 1.4% to 56.2p and Haleon, down 1.2% to 317.6p. 

Yesterday in the City

The FTSE 100 posted its fifth day of consecutive growth so far in 2023, with the index hitting highs not seen since 2018.

The index was up another 0.3% to 7,724.9pts yesterday, having ended 2022 at just over 7,450pts.

Risers yesterday included online specialists, with THG jumping 18% to 56.9p, Just Eat Takeaway.com, up 7.7% to 2,000.5p, Ocado, up 3.5% to 743.2p and its partner Marks & Spencer, up 2.6% to 141.1p.

Other risers included McBride, up 3.3% to 21.9p, Greggs, up 2.4% to 2,444p, Bakkavor, up 2% to 101p, Sainsbury’s, up 1.4% to 247.1p, Haleon, up 1.2% to 321.5p and Tesco, up 0.8% to 243.2p.

The day’s fallers included Hotel Chocolat, down 5.5% to 188p, Naked Wines, down 2% to 132.4p, PZ Cussons, down 1.8% to 213.5p and British American Tobacco, down 1.8% to 3,284.5p.

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