Last week, the International Monetary Fund (IMF) confirmed that Britain's economy was growing faster than the economies of every other major developed country, with forecasted growth at 3.2 percent this year and 2.7 percent in 2015. The health of the U.K. retail market has been improving in line with this upturn, but while there has been increased consumer demand within non-food sectors it’s a very different story for groceries, according to the KPMG/Ipsos Retail Think Tank (RTT).
Following its quarterly meeting earlier this month, RTT released its latest findings stating that the health of U.K. retail continued to improve in the second-quarter of this year. Of the three key drivers of retail health — demand, margin and cost — demand for non-food goods was particularly buoyant in Q2 and largely responsible for the overall improvement, with retailers benefiting from an increased level of disposable household income. However, in stark contrast, RTT said food sales struggled throughout the quarter — volumes were down and low price inflation hit sales values — making it a “benign quarter.”
Moving forward, RTT has forecast the health of the entire retail sector will “flatline” in the third quarter, reflecting growing concerns that the top four grocers will suffer further damage and hold back the overall health of the market. The food sector had escaped the worst of the recession, but now the economy is moving into growth, the largest players are beginning to suffer, it said.
David McCorquodale, head of retail at KPMG U.K., said the second quarter had been a battle between the gains made in non-food and the supermarkets’ ongoing troubles.
“The grocery market has never been so tough, competition is fierce and margins are being constantly squeezed as price matching and ongoing discounting becomes ever more common. This isn’t set to let up in the third quarter, as investment of store expansion will continue and the cost of delivering online retailing will rise as the popularity of the services increases,” he said.
Neil Saunders, managing director of retail research agency Conlumino, added that the food sector’s woes are partly attributable to changing consumer habits, including a shift to smaller, more regular convenience-based shops, which has led to reduced waste. It’s also the result of more savvy shoppers saving money at discount stores and through B.O.G.O.F. (buy one get one free) style promotions, he said.
Supporting Saunders’s assessment, the latest grocery share figures from Kantar Worldpanel, published for the 12 weeks ending 22 June 2014, found that the discounters Aldi and Lidl have continued to grow in importance, holding on to their all-time record U.K. market shares of 4.7 percent and 3.6 percent, respectively.
Both retailers have recently announced major expansion plans with Aldi aiming to double its store numbers to 1,000 by 2021, and Lidl seeking to boost its presence with an eventual total of 1,500 outlets.
Further evidence of this trend is found in a new report published by the Seafish, which states that in this period of “cautious optimism,” savvy shopping tactics have become normal practice with shoppers wanting value for money and products that help them keep to a budget. At the same time, strong seafood inflation is making products increasingly expensive compared to other proteins with the average price increasing by 6 percent in 2013.
Observing market trends for the six months to 14 May 2014, Seafish’s report affirms that 64 percent of shoppers intend to save money on groceries this year and 47 percent intend to keep to a set budget. In addition, 21 percent will focus on quality.
“Shoppers are economizing but they are not compromising and will continue to seek out ‘trusted’ brands and own-label at best price and good quality,” it said, and added that U.K. consumers want or need value for money, consistent quality, innovative products and packaging, convenience and value, affordable health and sustainability and welfare.
Seafish revealed that only 48 new seafood stock keeping units (SKUs) have been launched in the past 12 months, compared to 158 for chocolate — for example. And against such a backdrop, it’s clear the country’s seafood industry faces an uphill struggle to increase retail sales, particularly while it waits for a sustained trickle down from the improved economy to boost grocery spending.
The authority suggests future retail strategies should focus on products that address main shopper barriers to seafood, such as minimal handling and preparation of the product, ease of cooking and containing smell through innovative packaging. It believes products should bring excitement to the category through exploiting the growing demand for world food formats and flavors, focusing on premium and offering consistent quality and value for money. Furthermore, they could target either the healthy end of home snacking or “food on the go” trends such as sushi.
New product development (NPD) should also be tailored to exploit the three growing grocery channels of convenience, online and discounters in formats that are attractive to busy lifestyles and shopping agendas, it said.
