Retailers face their toughest year of trading since the early 1990s, as consumer confidence plummets, energy bills soar and house prices stagnate, but the UK's supermarkets do not seem to have read the script.
While many retailers are struggling, the credit crunch has done little to knock the UK grocery juggernaut off course.
This week, Sainsbury’s posted another buoyant set of figures – like-for-like sales jumped 4.1 per cent, excluding petrol, for the 12 weeks to March 22. The sparkling performance of the UK’s third largest grocer is in addition to the strong sales growth delivered by Morrisons, Asda and Somerfield early this year. Tesco is expected to follow suit in April, albeit at potentially a slower rate than in previous years.
Perhaps more revealing were the grocery figures from this week’s CBI Distributive Trades Survey. While a balance of just 1 per cent of UK retailers reported growing sales (36 per cent reporting growing sales and 35 per cent falling), a balance of 29 per cent of grocers said that sales were increasing in the first half of March compared with the same period last year.
In fact, the positive 29 per cent figure is higher than the net balance figures posted by the grocers for the three-month period between the end of July and the start of November.
In short, the grocery sector seems incredibly resilient and well equipped to weather any retail storm heading its way. After a torrid six months for retail stocks, the jump in Sainsbury’s shares this week seem to indicate that investors believe the defensive food sector is still one of the few safe havens worth investing in for the long term.
As Sainsbury’s chief executive Justin King said: “I’ve not been a subscriber to the doom and gloom view. Household budgets are squeezed, but food is less than 10 per cent of the family budget. You’ve seen big price increases on things like bread and other farm foods, but the reality is there are plenty of other things that haven’t gone up.”
Sainsbury’s chief financial officer Darren Shapland told Retail Week that the grocer’s food inflation is “just above 2 per cent, which is a bit more than we saw in the third quarter”.
While there is no doubt that the spectre of inflation continues to hang over the sector, Shapland says that highly competitive promotional activity in the sector is keeping a lid on overall inflation.
That said, few would disagree that the spectre of inflation will continue to hang over the sector for at least the rest of this year. As a result, the big grocers will have been flexing their financial muscles like never before in negotiations with suppliers. No doubt they will be playing the card that their delivery of increased sales volumes means they are entitled to some juicy discounts.
But aside from inflation in the food and supply chain, there appears to be little that will cause a major slowdown in the UK grocery sector this year. It might be grim in the boardrooms of fashion, homewares, DIY and electricals retailers, but bosses at Asda, Tesco, Morrisons and Sainsbury’s will not reaching for the Prozac for some time to come.