Grocery chiefs believe the forming of the new Government will calm shoppers’ nerves. But with taxes expected to go up, they will undoubtedly be slugging it out in non-food for the rest of the year.
Sainsbury’s boss Justin King confirmed what most retailers were telling Retail Week this week – that the uncertainty around the election hit consumer confidence and it has been a difficult week in stores.
As we reported this week, one supermarket chief told us that IGD data circulated to grocery chiefs showed last weekend was “flat” across the industry. But King said yesterday that consumers are now feeling better than they were a week ago, and he hopes the fact the new coalition government has now been formed will be calming on shoppers’ nerves.
Food chiefs will be relieved the coalition has scrapped the National Insurance rise – the “tax on jobs” which retailers like King opposed, but they do face the potential rise in VAT.
There’s no indication that VAT will be placed on food, and it will probably remain that way. Putting VAT on food will hit the poorest people the most, and no government wants to do that.
But if VAT goes up to 20% that will affect grocers’ non-food operations, and as all three of the big boys – Asda, Tesco and Sainsbury’s – are all ramping up their non-food operations, this rise will be an issue.
King said that retailers will probably try to absorb as much as possible of a rise in VAT but said that eventually it will trickle down to the consumers.
There’s no doubt it will be a tough year for consumers and retailers, and if VAT goes up, shoppers could cut back on those big ticket non-food purchases.
But in terms of grocery non-food sales, they are unlikely to suffer too much. Supermarkets currently account for less than 15% of the £166bn UK non-food market, therefore the scale of the opportunity is considerable.
Take CDs for example. It is a declining market overall, but as supermarkets’ share is so small, they can still gain share in a declining market.
The grocers’ therefore look likely to pile more pressure on the non-food specialists. So while this makes a tough retail market, it should benefit consumers in this tough climate.