Doing the UK supermarket sweep

THE jubilant spending during the Queen’s diamond jubilee may have given the high streets a boost, and inflation is being slowly reined in, but UK supermarkets are still facing a difficult year ahead.

According to the Confederation of British Industry (CBI), the Queen’s Diamond Jubilee boosted retail sales in June, but shop sales were down for the time of year. In its June survey, the CBI’s distributive trades index came in at 42 per cent – its strongest figure in 18 months. Retailers followed up a rise in retail figures in May with another stint of strong growth in both sales and orders.

The Jubilee celebrations, and the extended weekend that came with it, gave the high streets a boost. But celebrations are unlikely to continue into July for the supermarkets. According to Judith McKenna, chair of the CBI distributive trades panel, the report presents mixed fortunes for retailers: “It is notable that sales were still considered to be below par for the time of year.” McKenna adds: “Weak consumer confidence and uncertainty over the economic outlook are still putting a brake on consumer spending across the whole retail sector.”

The gulf between wages and inflation has fallen, slowing the erosion of the purchasing power of the pound in your pocket. Consumer Prices Index-based inflation has been flattened to 2.8 per cent – a long way from the 2011 rate of 5.2 per cent. At the same time, wages are increasing by around 2 per cent on average. But while inflationary pressures on the family shop have been eased, behaviour is going to lag macroeconomic data released by quasi-autonomous government departments, and the public will need greater incentives to increase their shopping. Tesco for one has seen its share price hit by spending power taking a knock – not just in Britain, but in emerging markets too. The Chinese slowdown has hit the largest UK-listed grocer, with newly implemented shopping hours legislation in South Korea also affecting profits.

Closer to home, it’s the race to the doorstep for online retailers which could cause the biggest shake-up. Sainsburys and Tesco are making substantial gains over initial pioneers Ocado, narrowing delivery windows and improving product quality. And it’s difficult to see Ocado fighting back – at 75p it is now a long way from its February 2011 price of 285p. Though still profitable, its average basket size has shrunk to £113.10 and will have to fight hard to prevent it shrinking further.

The supermarkets may have had cause to join in with the ticker-tape celebrations last month. But in the long term, it looks like a number of UK supermarkets will be left on the shelf this year.