SPARE a thought for the squeezed middle. No, not the ordinary family as defined by Ed Miliband, but the places they shop and the things they buy. The mid-market consumer firm is finding the going very tough indeed.
There has been much written about Tesco’s troubles in recent months, punctuated by a series of ignominious firsts, including a drop in like-for-like UK sales. Some of the blame can be pinned on management, but the supermarket giant is not alone in its woes. This week it is Wm Morrison’s turn: on Thursday it is expected to announce that like-for-like sales have fallen for the first time since 2004.
As the chart to the right shows, the mid-market grocers are under-performing the wider grocery market, which grew sales by five per cent in the 12 weeks to 15 April, according to Kantar. Those retailers who outperformed are either discounters – Aldi, Lidl and Iceland – or at the higher end – Waitrose and J Sainsbury.
The pattern holds for non-food retailers too. Primark, AB Food’s discount fashion chain, grew revenue by 15 per cent in its first half. Burberry, the luxury fashion label, increased its sales by 18 per cent in the six months to the end of March. No such joy for Marks & Spencer, the mid-market player that recently reported virtually flat sales for its fourth quarter.
A similar thing is happening in the technology space. Apple sold 35m units of its high-end iPhone in the first quarter. Samsung managed to better that by selling 44.5m handsets, again thanks to sales of higher-end phones such as the Galaxy Note and Galaxy One. At the cheaper end of the market, China’s Huawei expects to sell 100m smartphones this year. Nokia, firmly in the middle of the market and struggling to stage a fight back, sold just 2m of its own Lumia smartphones in the first quarter.
There are some who argue this is common sense. Hard-pressed middle class families are trading down to discounters to make ends meet. According to the compilers of the Sunday Times rich list, Britain’s wealthy are richer than ever before, explaining the resilience of the luxury sector, which is also benefiting from huge international demand.
But what if consumption patterns are changing? Some customers might be scrimping by buying cheaper groceries and Primark underwear so they can afford an iPhone or Burberry handbag. There is no guarantee that they will stop doing so when real incomes start to grow again.
That would spell disaster for mid-market consumer companies. Their biggest fear is that good enough just isn’t good enough any more.
Follow me on Twitter: @davidcrow83