More heartache for the UK groceries market

Poor trading continues to affect the UK groceries market with a fall in total retail sales of 1.4% between May and July, reports the British Retail Council-KPMG retail sales monitor.

Groceries sales were 0.2% down compared to the same period last year. In contrast, non-food retail enjoyed an increase in sales of 3.4% in the three month to July and the overall UK retail trade was up 1.3%.

The latest figures come just a few weeks after news that the UK groceries market experienced its slowest growth in 10 years.

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There was no sign that this downward trend in the groceries market would change anytime soon, said Clive Black, director and head of research at Shore Capital Stockbrokers.

If anything, the trading environment was likely to become more competitive, with changes to Tesco’s strategy expected from new CEO Dave Lewis, after Tesco’s Philip Clarke quit in July.

“The prevailing grocery market is a real challenge for the big superstore groups as the leaner and meaner discount stores gain share from value-based customers while those with ‘foody’ credentials are attracted to the more premium plays,” said Mr Black.

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“With less food waste, more eating out, and fewer calories eaten, it is the perfect storm in many respects. If this context is overlaid by specific weakness, as is the case at Morrisons and Tesco, then the collapse in profitability is easily explained.

“How to progress is now the big question and investment markets expect an even tighter pricing environment.”

Looking ahead, grocery retailer margins were more likely to fall rather than rise, predicted Mr Black, and the effect on consumer spending from rising interest rates would be one to watch.

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Among the big four grocers, both Asda and Sainsbury’s held on to their respective market shares of 17.0% and 16.6% in the 12 weeks to 20 July, according to Kantar Worldpanel.

However, Tesco and Morrisons each lost 3.8% compared with the same time last year, to give them 28.9% and 11% shares of the grocery market respectively.

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