Grocery inflation gains momentum but shoppers keep spending

The amount people are spending on groceries is far outstripping the number of items they’re buying, as retailers find it harder to continue absorbing rising costs in the food supply chain, according to Nielsen retail data released today.

In the four weeks ending 7 October, UK supermarkets saw sales revenue rise 3.9% year-on-year, the seventh consecutive month of sales growth above 2.0% whilst the volume of goods sold increased by just 1.6%. Excluding the discounters, volumes didn’t increase at all.

“Supermarket food inflation, at 2.2%, is at its highest for nearly four years and retailers have done a great job of cushioning shoppers from the rising food chain costs they’re experiencing, exacerbated by the weakening pound, but this can’t last for ever,” said Mike Watkins, Nielsen’s UK head of retailer and business insight. “Inflation is helping supermarkets growth and the good news for them is that shoppers are still spending. Meanwhile, the good news for shoppers is that grocery inflation is still below that in other parts of the economy – such as travel and fuel – and should peak later in the year. Furthermore, retailers are likely to up their use of price-saving promotions at Christmas, offsetting some of the inflation.

Confectionery (+6.6%), Alcohol (+5.5%) and Packaged Grocery (+5.1%) saw particularly strong growth in sales, with only Soft Drinks (-1.8%) down year-on-year, due to last September’s heatwave.

All of the major supermarkets saw year-on-year growth in the twelve weeks ending 7 October, apart from the Co-operative where sales were impacted by selling some smaller stores earlier this year. Tesco had the best performance of the ‘big four’, with 2.2% sales growth. Outside of the discounters, M&S (4.3%) and Iceland (3.1%) saw the biggest year-on-year rise in sales.

Looking ahead, Watkins said that because shopper grocery spend is still buoyant and Christmas advertising is just two weeks away, the competition for extra sales in non-essentials such as treats, indulgences and also fresh foods, will intensify. Even though Aldi and Lidl have maintained double digit growth all year, we expect people to shop around for their Christmas groceries and make more visits to retailers offering promotions, which may benefit the supermarkets who’ve wider seasonal ranges and a variety of store formats including online.

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