Growth drops in the UK food and grocery sector as retail experiences further decline

Liz Cooley finds out why an increase in food sales over the Christmas period may not be a cause for celebration as we enter 2020

British food retailers hit record sales of £29.3bn in the final quarter of 2019, an increase of £50m on the previous year, according to market analyst Kantar. However, this increase represents year-on-year growth of just 0.2% – the slowest rate of growth for the sector since 2015.

The latest grocery market share figures from Kantar show that supermarket retailer Tesco took the lion’s share of the market in the 12 weeks to 29 December, followed by competitors Sainsbury’s and Asda. The 23rd of December was the single busiest shopping day of 2019­ – in fact, it was the largest shopping day ever recorded – worth £798m as the nation stocked up before Christmas Eve.

But when comparing Q4 figures to those of Q3, data from the UK’s Office for National Statistics (ONS) shows the quantity bought in food stores fell by 0.6%, with a strong monthly decline of 1.3% in December. This was the largest fall since December 2016, also at 1.3%.

“December’s food and grocery sales ended 2019 on a downbeat note. Despite the influence of some inflation across the market, shopper spending was not as expected for such a key sales period,” explains Susan Barratt, CEO of IGD, a research and training charity for the food and consumer goods industry.

“As a result, while the value of spending wasn’t down, growth was negligible and volumes declined – a rarity for Christmas in recent times.”

Anecdotal evidence from a number of stores confirmed that goods did not sell as well as expected in December. However, Thomas Brereton, an analyst for data analytics and consulting company GlobalData, points out that the ONS figures relate to in-store purchases and do not account for online retailers such as Ocado and Amazon Fresh, as well as online purchases with more traditional retailers.

“Online transactions tend to spike around Christmas as shoppers trial online delivery for larger festive shops,” he explains. “Slow growth may also be affected by deflation in the market, such as stores reducing their prices on popular items to encourage return custom or win customers back from discounter stores.”

Tough trading conditions

“Looking at 2019 as a whole, it’s been a really tough year for the grocery industry against the background of Brexit,” explains Matt Botham, strategic insight director at Kantar. “While grocery remains largely immune from recessional shocks because it’s a necessity, so it’s a bit more robust, it is still impacted by lower consumer confidence, with people making different decisions about which brands they choose or how much they buy.”

He also points out that 2018 was a fantastic year for the grocery market, largely due to a hot summer and the positive impact of the FIFA World Cup (football), with Q3 in particular seeing growth of about 4%.

“What that’s meant is that 2019 was always struggling to compete with that high growth rate, due to a shorter summer and the continued political uncertainty,” he explains. “Looking ahead, we’ve got the Olympics and the Euros [UEFA European Football Championships], softer comparative growth rates to annualise against, and we won’t be facing the same political headwinds, though nothing is guaranteed as we see how Brexit plays out over the next few months.”

As well as making the most of the positive feeling around sporting events, retailers will also be looking to take advantage of conversations around issues such the environment, food wastage and customer experience to engage with consumers.

“More traditional retailers will be looking to attract customers through differentiation, including focusing more on sustainability efforts or customer service,” says Brereton.

Tesco announced on 24 January 2020 that it would be removing plastic wrap from multipack tins in a bid to meet consumer demand and Morrisons is cutting the number of management positions by 3,000 in favour of more customer-facing roles in store.

Impact on the high street

The latest food and grocery figures are indicative of the wider issues being faced by numerous high street stores. A number of big names fell victim to the tough trading conditions in 2019, including Jamie Oliver’s restaurant chain and Patisserie Valerie. Monthly retail sales volumes across the board fell by 0.6% in December, the fifth month in a row without growth.

“2019 was the worst year on record and the first year to show an overall decline in retail sales,” explains Helen Dickinson OBE, chief executive of the British Retail Consortium.

“This was also reflected in the CVAs, shop closures and job losses that the industry suffered in 2019.”

Dickinson also attributes the year’s poor performance to the political and economic uncertainty caused by a potential ‘No-deal’ and the December General Election, which she said further weakened demand in the festive period.

Raising the game

So how can traditional retailers remain relevant and compete with more successful ecommerce players amid the current climate? Will Broome, CEO of shopping app Ubamarket, says stores must embrace retail tech in order to attract and retain more customers.

“The rise of e-commerce, and the added convenience it brings, is certainly one of the main contributors to the decline we have seen in traditional retail industry. Another factor is that physical retail is often hit worse when it comes to factors such as political or economic uncertainty.

“Many retailers simply have not managed to adapt to the evolving nature of the industry and are lagging when it comes to nailing the customer experience and making their in-store offerings appealing to the base needs and desires of the consumer.”

He does, however, remain optimistic for the future of the UK high street. “I think the sector still has vast potential and it is simply a case of retailers getting it right by curating the best customer experience possible to encourage consumers back into the stores,” he explains.

Implementing tech solutions, in particular mobile technology, can give retailers access to far more detailed consumer data while improving convenience levels and overall shopping experience. One such mobile solution is Ubamarket’s Scan, Pay, Go! App, which enables retailers to hyper-personalise the shopping experience.

While the struggle for the high street continues, there is plenty retailers can do to help themselves stand out from the crowd and fight for market share. Keeping on top of wider economic and social trends, as well as the gains that can be made through the use of developing technology, can go a long way to engaging with customers and ensuring footfall in the coming year.

Liz Cooley

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