Food retailers brushed off uncertainty created by the EU referendum result as a July heatwave boosted sales.
The sector recorded its best performance last month since November 2013, with growth on a three-month basis at 0.8%, its highest since March 2015, according to the latest BRC–KPMG retail sales data. Adjusted for food price deflation, the three-month average volume growth increased to 1.4%.
Snacks and picnic food sold well during the hot weeks of July as consumers took advantage of the hot weather, and soft fruits were also very popular, the BRC-KPMG report said.
Like-for-like retail sales also increased by 1.1% across the UK in July, compared with the same month a year ago. On a total basis, sales rose 1.9%, against a 2.2% increase in July 2015 – the strongest growth since January.
BRC chief executive Helen Dickinson said: “This month’s solid sales figures may come as a shock to some given the slew of early indicators suggesting that consumer activity was slowing in the wake of the referendum result. However, little has materially changed for most UK households in the wake of June 23, so it is not surprising to us that sales are simply responding to their normal underlying drivers. A heavy month of promotions proved very successful in appealing to bargain-hungry shoppers.
“The big question for retailers is whether that success can be carried forward into full price sales. Whilst retailers continue to monitor the situation in the wake of Brexit, responding to rapid and complex change in consumer behaviour in the midst of a highly competitive market remains the substantive challenge. The industry is in the process of productivity-enhancing transformation, but Government needs to play its part to ensure that change is not suffocated by increasing costs.”
David McCorquodale, head of retail at KPMG, added: “The sun shone down on retail fortunes in July. Warmer weather helped blow away some of the post-referendum blues, boosting the UK feel good factor and giving consumers a sense that ‘life goes on’ following the initial shock of the Brexit vote.
“The July heatwave put picnics and barbeques high on the agenda lifting sales of food and drink back into the black. Meanwhile, fashion sales improved markedly versus June as well-timed promotions, holiday preparations and some sunshine prompted consumers to supplement their summer wardrobes.”
Morrisons is accelerating its online coverage of the UK after agreeing terms for Ocado to develop a store pick service for the supermarket. It follows almost six-month of negotiations between the two businesses to thrash out a contract.
Under the new revised terms Morrisons will be able to fulfil online orders via store pick anywhere in Britain, including areas not currently covered by the online operation; take capacity in the Erith hub; and sell thousands of Ocado’s non-food range. There will also be a substantial reduction to the £8m annual R&D fee paid by Morrisons and the profit share agreement will be scrapped.
Morrisons CEO David Potts said: “The new investments in online growth are further examples of Morrisons building a broader business and will allow millions more customers all over Britain to enjoy Morrisons good quality fresh food and great value for money. As food maker and shopkeeper, we continue to ‘follow the customer’ and move towards achieving capital light, profitable growth online.”
Ocado CEO Tim Steiner added: “I am delighted to announce this extension to our agreement with Morrisons, which will provide them with additional capacity for the growth of their online business, supported by our proprietary technology and infrastructure solutions. We see this agreement as a further endorsement of the strength and attractiveness of our capabilities that we can provide to our existing UK partner, and for retail partners globally.”
Morrisons expects its annual dot com EBIT loss to continue to reduce each year and to be a key component of the £50m-£100m incremental profit opportunity announced at the preliminary results in March 2016.
For the full story and analysis see thegrocer.co.uk this morning.
After yesterday’s strong gains (see below) Ocado shares have climbed another 3.5% to 286.1p as the markets opened this morning, with Morrisons up 1.3% to 190.4p.
Real estate investment trust Tritax Big Box has acquired a distribution facility in Manchester let to Kellogg’s for £23.5m. It reflects a net initial yield of 5.9% on the asset acquisition. The purchase is being funded from equity proceeds, with senior debt finance expected to be introduced in the near term. It is one of three distribution and production facilities located at Trafford Park let to Kellogg’s and is in close proximity to its production facility at Barton Dock Road, which is the Kellogg Company’s largest manufacturing facility in Europe and where it manages its national and some international operations.
Aquatic Foods Group has appointed Po Ling Low as finance director. The AIM-listed Chinese marine foods and seafood processor said she has more than 18 years of experience in the corporate finance, audit and investor relations sectors across the UK and Asia. Po Ling has previously held positions at PwC, BDO, PKF and Goldenway Capital, a private equity and financial advisory firm in Beijing.
The FTSE 100 started as it ended yesterday, moving up another 0.3% to 6,830.92 points.
Yesterday in the City
Ocado (OCDO) shares jumped 6.3% to 276.3p yesterday on rumours that the online supermarket was close to announcing a formal agreement with Morrisons after revealing an outline agreement earlier this year. Sky News reported that Morrisons was likely to announce within days that it had reached a deal to take capacity at an Ocado warehouse in Erith, Kent. Morrisons (MRW) was also up 1.7% to 188p.
The FTSE 100 nudged up 0.2% to 6,809.13 points on the back of data from Visa showing consumer spending holding up in the UK post-Brexit. The blue-chip index finished at its highest level in more than a year thanks to gains in the mining sector and an upgrade for Barclays.
There much news flow to drive the markets yesterday but Cranswick (CWK) was among the fallers, down 1.8% to 2,336p, as were Compass Group (CPG), down 1.6% to 1,444p, British American Tobacco (BAT), down 1.5% to 4,759.5p and Imperial Brands (IMB), down 1% to 4,011p.