Shoppers are turning to discounters and supermarkets’ own label goods as price rises pick up across the grocery market.
The German chains Aldi and Lidl are growing at their fastest rate in more than two years as supermarkets raise prices following the fall in the value of the pound since the Brexit vote, which has pushed up the cost of imported goods.
Sales at Aldi rose by 19.8% and at Lidl by 18.3% in the 12 weeks to 21 May, while the UK’s big four supermarkets, Tesco, Sainsbury’s, Asda and Morrisons, collectively grew by just 1.6%, according to market share data from Kantar Worldpanel.
The German chains’ rapid growth took their combined market share to a new high of 12%, as 1.1m more cash-strapped consumers in search of a better deal visited their stores.
Lidl, which holds 5% of the UK grocery market, is expected to overtake Waitrose, which has a 5.2% share, as the seventh biggest chain briefly this summer and consolidate its position next year. Meanwhile, supermarkets’ own label sales rose by 6.0% year on year in contrast to a 0.6% rise in branded products as shoppers looked for a cheaper alternative.
Chris Hayward, consumer specialist at Kantar Worldpanel, said: “Consumers are starting to feel the pinch as prices continue to rise.”
Grocery market inflation rose to 2.9% in the 12-week period, up from 2.6% reported last month. Hayward said the rise meant families had to spend £27 more for the same basket of goods over the period. “That may not seem like much, but if inflation continues at its current rate over the course of a year that would mean an extra £119 spent on groceries per household,” he added.
Inflation underpinned the second consecutive period in which all the major chains achieved growth. The overall market grew by 3.8% year on year, the market’s best performance since September 2013.
Hayward said a drive for healthy eating – perhaps after the excesses of Easter, when the nation consumed £325m of chocolate eggs – had also helped boost performance. The amount of mineral water sold rose 7.4%, while eggs were up by 5.1% and fresh produce up 2.1%. In contrast, sales of sugar were down 5.6% year on year.
But the market researchers Nielsen found that the grocery market had increased sales in total by just 0.2% as food price inflation had been offset by a 2.3% fall in the volume of goods sold.
“The return of inflation has helped supermarkets grow sales but the challenge for the summer is to sustain this by encouraging shoppers to put more items into the weekly basket,” said Mike Watkins, Nielsen’s UK head of retailer and business insight.
But he added: “Rising inflation means people will be more aware of balancing household budgets, which may encourage spending more on eating at home, rather than at restaurants.”
Bank of England lending figures showed that consumers had also become more cautious before dipping their toes in the housing market.
Approvals for house purchases fell for the fourth consecutive month to 64,645, while approvals for remortgaging loans tumbled to 40,575 from 45,551 in January. Net lending secured in April was £2.7bn, the lowest for a year, the Bank said.
Nationwide Building Society said last week that consumers were alert to the economic risks associated with the Brexit negotiations. It forecast that house price growth would slow to its lowest pace in four years, to 2% in 2017.
However, consumers appeared to be willing to borrow over the short term: Bank of England figures showed consumer credit remaining at elevated levels in April. At £1.5bn, the annual growth rate was broadly unchanged at more than 10% above the same month last year.
