The past year was a turbulent one, but British shoppers responded by seeing it out with a glut of food purchases. Festive food, to be precise, or at least that's what the latest figures from Kantar Worldpanel suggest. The consumer data body said grocery market share figures for the 12 weeks ending 1 January 2017 showed the "fastest recorded growth since June 2014", thanks to an additional consumer spend of "almost half a billion pounds". This helped total supermarket sales rise by 1.8 per cent over the same period.
While most supermarkets were up against weak comparative figures from 2015, it seems shoppers spent a staggering £480m more in 2016, leading many grocers to report record Christmas figures. One such example was Wm Morrison (MRW) - arguably a company still finding its way back from the brink under the leadership of ex-Tesco executive David Potts. Over the nine weeks to 1 January, like-for-like sales excluding fuel were up 2.9 per cent, the group's strongest performance for seven years. Total sales were also up - 2 per cent excluding fuel - despite the continuing impact of store closures.
Most importantly, after 28 months of deflation in the market, Kantar said like-for-like grocery prices increased by 0.2 percentage points, thus marking a return to inflation for the sector. This might explain why supermarket sales are suddenly looking better compared with the past few years, especially when coupled with other self-help measures such as improved customer service levels, growing online sales and growth in transaction volumes.
But how long will inflation work in retail's favour? This is a particular concern for food retailers that suffered at the hands of the discounters during the last prolonged downturn. Top lines might be singing for the moment, but if wage inflation can't keep pace with price inflation, customers will inevitably be forced to trade down. This could lead to further market share gains for the likes of Aldi and Lidl and resultant pressure on the bottom line for rivals
That said, this time the discounters may not have quite the same advantage they did. Tesco (TSCO) and Morrisons have made real strides towards improving their business models, not to mention their product ranges, while the devaluation of sterling will affect any business that sources goods in a foreign currency. While the end of price deflation will undoubtedly be lauded by many, grocers will still have to compete this year to persuade customers to spend their limited household budgets freely.
