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Food sales have risen 9.8%, driving overall UK retail growth

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UK retail sales growth remained flat in April as sales volumes remained well below inflation and consumer demand appeared to weaken.

According to the BRC- KPMG Retail Sales Monitor for April, total UK retails sales were up by 5.1% in April, the same rate of growth seen in March.

Overall growth was driven by food sales, which increased 9.8% on a total basis and 10% on a like-for-like basis over the three months to April,

Non-food sales increased by a more modest 1.2% on a total basis and 0.8% on a like-for-like basis over the three months to April, although this remained above the 12-month total average growth of 0.2%.

Over the three months, in-store non-food sales were up 3.9% on a total basis and 3.3% on a like-for-like basis, while online non-food sales were down 3.6% in April – which was a steeper decline than the three-month average decline of 2.9%.

“While retail sales grew in April, overall inflation meant volumes were down for both food and non-food as customers continued to adjust spending habits,” said BRC CEO Helen Dickinson. “Clothing sales underperformed as the poor weather left customers thinking twice before decking out their summer wardrobe. Meanwhile, a boost to overseas tourism over Easter helped jewellery, watches and cosmetics.

“Retailers hope sales will improve over the warmer summer months, especially as consumer confidence stabilises and inflation begins to ease. However, they continue to face huge cost pressures from a tight labour market, high energy prices, and other rising input costs, with many retailers reporting lower profits this year as a result. Government needs to ensure any additional regulatory cost burdens are kept to a minimum as these add to inflation.”

Paul Martin, UK head of retail at KPMG, added: “Retail sales held steady in April with 5% growth on last year, but against a background of higher inflation year on year, masking how much is actually healthy growth for the sector.

“It was a mixed bag for the high street, with sales of footwear, food and jewellery performing strongly whilst more categories slipped into negative territory as clothing and computing continued to witness declining sales. Online retailers continued to feel the pressure in April, with both sales growth and penetration rates falling as the market rebalances after the pandemic and consumers choose to bargain-hunt in store.

“Consumer demand has so far been fairly resilient to the twin drags of high inflation and high interest rates, but as government energy support comes to an end for many, savings start to dwindle and other household bills rise, it is likely the next few months will continue to be challenging as the consumer tank empties. Much hinges on whether soaring food inflation can be brought under control enough to allow consumers to comfortably start spending again on non-essential items.

“Retailers will be hoping the coronation, coupled with a month full of bank holidays and inflation levels starting to head in the right direction, will boost consumer confidence significantly enough to start to see real, profitable growth.”

Speaking on food and drink sector performance, Susan Barratt, CEO of IGD, said: “Food and drink sales in April continued the same trajectory seen in recent months; volume sales were negative and value sales were positive, driven by ongoing inflation. In response, retailers have been stepping up their support to shoppers, with further high-profile innovation and investment in loyalty schemes in April, providing access to better prices.”

Morning update

Consumer card spending grew just 4.3% year on year in April – less than half the latest UK inflation rate of 8.9% – as rising costs continue to place pressure on consumer finances, according to new data from Barclaycard.

Spending on groceries increased 5.5%, yet this was significantly lower than the latest ONS food price inflation rate (19.2%) and smaller than March’s growth (7.1%).

This comes as nearly nine in 10 shoppers (89%) say they are concerned about the impact of rising food prices on their household finances, while 67% are looking for ways to reduce the cost of their weekly shop.

Popular money-saving methods adopted by these shoppers include buying discounted products nearing expiration (38%), and using vouchers or loyalty points to get money off at the checkout (37%).

In addition, almost seven in 10 (69%) have been making product “swaps” to save money recently, with over a quarter (27%) shifting from supermarket own-brand premium ranges to standard or value ranges, and a similar proportion (24%) swapping fresh food for frozen food.

Spending on fuel dropped 9.3% due to falling petrol and diesel prices, especially compared to April 2022, when they were much higher due to the Russian invasion of Ukraine.

Spending on utilities saw less of a year-on-year uplift (34.4%) compared to March (39.3%), largely due to the energy price cap increase in April 2022.

Despite this, spending on non-essential items saw higher year-on-year growth in April (4.6%) than in March (3.5%), as the Easter weekend and arrival of spring encouraged more people to enjoy social and outdoor activities.

However, restaurants saw a steeper drop (–7.6%) than in March (–5.6%), while clothing remained in decline (–2.3%) for the third month in a row.

Esme Harwood, director at Barclays, said: “The arrival of slightly warmer weather, along with the Easter bank holiday weekend, led to more Brits venturing outside to enjoy social and leisure activities in April.

“Brits are still searching for ways to reduce spend on essentials, so they can enjoy experiences such as holidays, shows and concerts.”

Abbas Khan, UK economist at Barclays, added: “High inflation continues to squeeze real household disposable incomes and constrain consumption. However, this has been somewhat offset by the decline in wholesale energy prices and the price cap on household energy bills, which are contributing to an improvement in consumer confidence.

“The data suggests pockets of the economy, particularly the leisure sector, enjoyed some renewed momentum in April. Going forward, while energy bills are set to fall from Q3, higher mortgage rates cloud the outlook as households continue to refinance at significantly higher rates through the year.”

Elsewhere this morning, ingredients and flavouring group Treatt has posted strong growth in its first half of its financial year, with sales up 14.6% in the period and 8.5% up at constant currency.

While growth was driven by pricing, it said volumes into the beverage market have shown resilience despite the uncertain macro environment.

It continues to win business with both new and existing customers through direct sales to fmcg brands, as well as indirectly through flavour and fragrance houses, “demonstrating the strength of the group’s diverse business model”.

The group’s strategy to diversify away from minimally processed citrus towards more value-added ingredients continued to drive a strong performance.

Citrus, which represented 54.2% of group revenue in the period, grew by 32.6% as the group benefited from pricing strategies and increased value-added citrus sales to existing fmcg beverage customers. Volumes in lower-margin products were actively managed downwards given its strategic focus.

The group saw declines in synthetic aromas and herbs & spices, and growth in fruit & veg, health & wellness and coffee.

Its largest region, the US, grew 18.9% (6.5% in constant currency) mainly as a result of higher prices to recover raw material inflation and favourable citrus mix, fruit & vegetables and coffee volumes improved in the period.

Europe, excluding the UK, has continued to perform well, with growth of 19.9% in the period driven by strong citrus performance.

The UK reduced by 21.1% impacted particularly by a decline in synthetic aroma volumes.

Overall gross profit margins were higher in the period (up to 28.2% from 27.5% last year), reflecting the successful execution of price increases to recover raw material inflation and a positive mix effect in citrus.

Operating costs increased by 17.4% (10.7% in constant currency) to £13.7m, with increased depreciation in the UK of £0.5m and general cost inflation being key drivers.

However, strong cost discipline and other self-help measures have also helped to deliver growth in profit before tax and exceptional items to £7.3m, which is 15% ahead of the prior year’s £6.3m.

CEO Daemmon Reeve said: “We came into this financial year determined to continue pursuing the exciting growth opportunities available to Treatt with a focus on cost discipline and pricing initiatives to counter the inflationary backdrop. These actions have proved effective and we have achieved record sales for the period and a strong profit performance.

“We remain well-positioned to capitalise on prevailing trends in a resilient beverage market. We are winning new customers and deepening our relationships with our existing ones. This has led to a very strong performance in our higher-margin citrus category and growth in China following its reopening, and we have also seen some good early wins in the exciting coffee market.

“Treatt has good momentum going into the second half to support our continued confidence in the group’s future prospects.”

Finally, Cellular Goods, the CBD skincare and wellness company, has announced the completion of its acquisition of the entire issued share capital of King Tide Carbon.

The deal will be funded by the issuance of 95 million new shares to the sole shareholder of King Tide, Matthew Lodge, who becomes a non-executive director.

The acquisition has no revenue currently but is forecast to generate revenue by the end of the year.

King Tide is a Singapore-based biosynthetic algae and seaweed carbon sequestration-as-a-service company, with a mission to deliver sustainable, scalable, and carbon removal credits to support global and national commitments to achieving net zero carbon emissions by 2050.

On the markets this morning, the FTSE 100 has opened the week edging down 0.1% to 7,772.1pts.

Risers include Bakkavor, up 3.1% to 98.6p, Virgin Wines, up 2.8% to 37p and Fever-Tree, up 2.3% to 1,440p.

Fallers include McBride, down 2.8% to 31.1p, Ocado Group, down 2.3% to 484.2p and Naked Wines, down 1.8% to 111p. 

This week in the City

This week looks another relatively quiet week after the second consecutive bank holiday weekend.

In company news, tomorrow brings interim results from catering giant Compass Group.

Internationally, Hain Celestial posts Q3 earnings later today along with Q1s from Oatly and Q3s from Coty, while Ahold Delhaize releases first quarter results tomorrow.

Tomorrow sees the John Lewis Partnership council confidence votes on Dame Sharon White’s running of the business.

The latest Bank of England MPC interest rate decision will come on Thursday.