Supermarkets savour happy Christmas as households spend £1bn more

UK supermarkets had a very merry Christmas as they notched up the busiest shopping day ever recorded on the Friday before Christmas and in the run-up to the big day sold £1bn more groceries than the year before.

In the 12 weeks to 31 December, overall supermarket sales values increased 3.8%, figures from Kantar Worldpanel showed on Tuesday, as £747m was spent on 22 December alone and the average household spent a record £1,054 on groceries over the three months including the Christmas period.

Despite tightening household budgets amid rising inflation and low wage growth, shoppers appeared to be prioritising their spending, said Fraser McKevitt, Kantar's head of retail and consumer insight. "A record £469m was spent on premium own label lines in December alone with chilled items, fresh meat and bakery featuring prominently," he said.

Alcohol sales of £3.9bn over the 12 weeks was a 5.1% increase year on year, led by a 7.6% rise in spirits sales as consumers favoured festive tipples of gin and whisky.

“Shoppers are splashing out despite fewer promotions to tempt them," McKevitt said. "Only 36% of spending was on items on offer this year – the lowest level of promotional activity at Christmas since 2009. Consumers are still facing more expensive groceries: like for like prices rose by 3.7% in the 12 weeks to 31 December, a slight increase on the 3.6% rise reported last month.”

Tesco was the fastest growing of the big four supermarkets, with sales growth of 3.1% in the 12 weeks being the fastest growth the retailer has seen since June. This was helped by a 6.4% increase in sales of standard Tesco own label lines.

As Christmas day was on a Monday, Tesco Express and other convenience stores benefitted from restricted Sunday opening hours for larger supermarkets and were able to capitalise on consumers preferring to shop closer to home immediately before the big day.

Tesco, two days ahead of its Christmas trading statement, still saw its market share shrink to 28.0% from 28.2% as discounters continued their rise over the festive period, with Lidl and Aldi both growing sales 16.8% in the three month period.

Sainsbury’s, which is due to report on its festive trading on Wednesday, grew 2.0% as sales rose across its convenience stores, larger supermarkets and online deliveries but saw its market share slip 0.3 percentage points to 16.4%.

Sainsbury's move away from promotions saw 5.6% fewer items on offer than during the same period last year, part of a wider trend that saw 36% of spending across the industry on cut-price items – the lowest level of promotional activity at Christmas since 2009.

This is possible as grocery inflation was 3.7% for the 12 week period as prices continued the rise that began last January after more than two years of grocery price deflation. Prices are rising fastest on butter, fresh cream and fresh fish, and are falling in only a few items, including crisps and fresh poultry.

Morrisons, which impressed with its fourth quarter update on Tuesday, increased sales by 2.1% in the 12-week period but saw its market share fell by 0.2 percentage points to 10.7%.

Asda’s sales grew by 2.2% but saw market share declined by 0.2 percentage points to 15.3%.

Ocado outpaced the online market, increasing sales by 8.4% to account for 1.3% of the grocery market, up from 1.2% a year ago.

Data on the sector was also out from Nielsen, which showed Marks & Spencer had one of the best grocery sales growth figures in the final quarter, with sales up 3.6% in the final 12 weeks of the year.

Nielsen highlighted the stark contrast between thriving supermarkets and many high street retailers who saw less footfall and sales declines.

Mike Watkins, Nielsen’s UK head of retailer insight, said: “The timing of Christmas day certainly helped as it was conducive to last minute indulgences and fresh foods, however, some supermarkets used private-label and branded promotions to drive Christmas footfall.”

Nielsen noted that private-label sales at the supermarkets grew at nearly three times the rate of the overall grocery market at 6% as most retailers made a big play on the quality and value of premium private-label this Christmas.

Online sales also played a key part, with 18% of households shopping online for groceries in December, up from 16% last year. Online sales grew 5%, resulting in the channel hitting a high of 6.4% share of all grocery sales in the final quarter.

While Kantar and Nielsen both crowned Tesco the sales winner over the final three months of 2017, analysts said it was telling the strong data news didn’t lift Tesco's share price.

"No mysteries here," said Ken Odeluga at City Index. "The bugbears of established supermarkets, Aldi and Lidl, were on the march again, resuming their market share grab during the quarter after a patchy showing last year. They did not take share from Tesco during the quarter. But the time when discounters routinely achieved just that—during the similarly problematic price environment of 2014-2015—is still fresh in investors’ minds."

Tesco reports its own Christmas trading on Thursday, following Sainsbury’s on Wednesday.