After a two-year low in February, total sales increased by 3.5% in March, ahead of the 2.1% three-month average growth, and above the 12-month average of 2.9%.

Non-food sales decreased 1.9% year-on-year over the three months to March, against a growth of 1.8% in March 2023.

As Helen Dickinson OBE, Chief Executive of the British Retail Consortium outlined, the early Easter also boosted sales of products such as cookware and tableware.

“After a difficult start to the year, retailers are hopeful that with warmer weather around the corner, consumer confidence will spring back up,” said Ms Dickinson.

“A strong retail industry can boost investment across our towns and cities, and as we gear up for a general election, it is essential the next government recognises this and rethinks the burdensome costs imposed on retailers.”

UK Head of Consumer Markets, Leisure & Retail at KPMG, Linda Ellett added Easter showed “green shoots of spring for retailers in March” however she also urged caution.

“As April signals big increases in the sector’s cost base – through the rise in minimum wage rates and business rate hikes for the larger high street brands – retailers will be hoping that the bounce back of March sales is more than just an Easter blip,” said Ms Ellett.

“Economic indicators are heading in the right direction with inflationary pressures easing and interest rates having potentially peaked, however consumer confidence remains fragile, and households continue to keep a close eye on where their tight budgets are being spent.”

Sarah Bradbury CEO at IGD said the UK grocery market benefited from Easter falling in March this year.

“This has led to very positive comparisons with spending increasing on March 2023, and importantly significant volume growth,” said Ms Bradbury.

“This marks the fourth consecutive month of year-on-year volume growth, offering hope to retailers and suppliers of finally being able to regrow margins that have shrunk during the cost-of-living crisis.

“At a total level, shoppers have a growing confidence in their financial outlook, however the strength of this growth varies by household income. For lower income households, confidence is growing at a slower rate despite news of an almost 10% increase to the National Living Wage.

“For all shoppers, we expect the cautious approach to continue as cost-of-living challenges remain.”

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The latest figures from the Office for National Statistics (ONS) show that prices for food and non-alcoholic beverages rose by 5.0% in the year to February 2024, down from 7.0% in January.

The rate has eased for the 11^th consecutive month from a recent high of 19.2% in March 2023, the highest annual rate seen for over 45 years.

The annual rates for most types of food product eased between January and February 2024, with the largest effect coming from bread and cereals. Overall, prices for bread and cereals rose by 0.3% on the month, compared with a rise of 2.3% between January and February 2023.

Prices of packs of cakes and some bread products (eg. white sliced loaves) fell between January and February this year but rose a year ago.

The ONS reports that other smaller downward effects came from classes such as meat, vegetables, and milk, cheese and eggs.

Overall, the annual rate eased in 10 of the 11 food and non-alcoholic beverages classes with oils and fats the exception; its annual rate rising from 8.0% in January to 8.3% in February 2024.

ONS Chief Economist Grant Fitzner said: “Food prices were the main driver of the fall, with prices almost unchanged this year compared with a large rise last year, while restaurant and café price rises also slowed.

“These falls were only partially offset by price rises at the pump and a further increase in rental costs.”

Meanwhile, Kris Hamer, Director of Insight at the British Retail Consortium (BRC) said the latest inflation figures were good news for consumers, but warned government not to be complacent.

“Significant costs on the horizon may put renewed pressure on overall inflation in the near future; these include a 6.7% rise in business rates, and reforms to the packaging levy and electrical takeback schemes, all in the context of the biggest rise to NLW on record,” he said.

“This will limit investment and drive up costs at a time when many families are still facing a higher cost of living.”

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Food inflation decelerated to 5.0% in February, down from 6.1% in January and marks the 10^th deceleration in the food category.

Additionally, fresh food inflation slowed further in February, to 3.4%, down from 4.9% in January, its lowest since February 2022. Meanwhile ambient food inflation decelerated to 7.2% in February, down from 7.7% in January, and the lowest since July 2022.

Chief Executive of the British Retail Consortium, Helen Dickinson said there was good news for consumers.

“Food prices fell month-on-month with drops in fresh food including meat, fish and fruit. This was driven by easing input costs for energy and fertiliser while retailers competed fiercely to keep prices down,” said Ms Dickinson.

PRICE CUTS

“Easing supply chain pressures have begun to feed through to food prices, but significant uncertainties remain as geopolitical tensions rise. Prices of non-food goods will be more susceptible to shipping costs, which have risen due to the re-routing of imports around the Cape of Good Hope.

“Domestically, retailers face a major rise to their business rates bills in April, determined by last September’s sky-high inflation rate. April’s rates rise should be based on April’s inflation, and the Chancellor should use the spring Budget to make this correction, supporting business investment and helping to drive down prices for consumers.”

Head of Retailer and Business Insight at NielsenIQ, Mike Watkins added: “shop price inflation has slowed and the underlying trend in prices will be downwards over the next few months.

“Since the start of the year, food retailers in particular have reduced prices as well as passing on price cuts coming through supply chains. For high street retailers faced with weaker demand, keeping prices stable over the next few months will be key to encourage customers to spend.”

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The British Retail Consortium said this was down to weak consumer confidence continuing to hold back spending.

UK total retail sales increased by 1.7% in December, against a growth of 6.9% in December 2022 and below the three-month average growth of 2.3%.

Food sales increased 6.8% on a total basis over the three months to December and for the month of December, food was in growth year-on-year.

Helen Dickinson OBE, Chief Executive of the BRC said this year looks to be another challenging year.

“The post-Christmas sales were unsuccessful in enticing spend in areas such as furniture and homeware, with households remaining cautious about making larger purchases,” she said.

“Sales saw a slight uptick in the week leading up to Christmas as consumers scrambled to purchase last-minute gifts, particularly online, due to the wet weather.

“2024 looks to be another challenging year for retailers and their customers, and spending will continue to be constrained by high living costs.

“Retailers will also have to juggle various cost pressures, including the rise to business rates this April. This will be compounded by other emerging issues, such as the disruption to shipments from the Far East via the Red Sea.”

UK Head of Retail at KPMG, Paul Martin added that the festive feel-good factor was lacking this year, with retailers facing a disappointing December.

“Christmas shoppers ditched clothing, jewellery and technology gifts, opting for beauty, health and personal care products, which, along with food and drink drove festive sales this year,” he said.

“Online sales remained in negative territory, although the decline was weaker than seen in recent months with sales down nearly 1% on last year.

“Retailers rolled out promotions that lasted longer and were deeper than last year and higher promotional activity amongst supermarkets saw grocery price inflation fall at its fastest rate on record in December. Whilst promotions are margin dilutive, retailers have done some great work in re-engineering supply chains to make them more cost effective, which has given more room to push ahead with discounting, and given the current environment, this is likely to stay with us for a while.

“Despite falls in inflation, an upcoming cut in national insurance rates, and some consumers having more money in their pockets this Christmas than last, the constant drip of economic challenges they’ve faced over the last two years has finally come home to roost.

“As we start a new year, cautious consumers are battening down the hatches and retailers can expect to see significant downward pressures on demand in the opening months of this year, which will ease off by spring if the economic conditions continue to improve and confidence slowly returns.”

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Setting out its latest findings and the next steps in its ongoing review of the groceries sector, the Competition and Markets Authority (CMA) said it would also launch a review of loyalty scheme pricing by supermarkets, considering its impact on consumers and competition in the groceries sector.

Food price inflation continues to be at historically high levels, despite falling to 10.1% in October 2023. Across the food and groceries sector, the CMA found that high inflation has been driven largely by rising input costs, particularly for energy and key agricultural inputs, like fertiliser.

However, the evidence collected by the CMA indicates that over the last two years, around three-quarters of branded suppliers in products such as infant formula, baked beans, mayonnaise and pet food have increased their unit profitability and, in doing so, have contributed to higher food price inflation.

Overall profit margins have fallen across most branded manufacturers since 2021, mainly because of a fall in sale volumes due to consumers switching to cheaper alternatives.

‘DIFFERENT DYNAMICS’

The CMA also heard from leading brands that they are aiming to use any future reductions in their input costs to offer customers more promotions, rather than cut the standard price they charge supermarkets for their products.

Baby formula is a product category where different dynamics seem to apply. The prices for baby formula in the UK have risen by 25% over the past two years.

Similar to other products the CMA examined, evidence suggests that branded suppliers of baby formula have also increased their prices by more than their input costs. On top of this, the market is highly concentrated (two firms have around 85% of the market share) and brands have maintained high profit margins over the last two years.

Unlike other products examined, there is little evidence of parents switching to cheaper branded options as prices have risen and very limited availability of own-brand alternatives.

The CMA added that it plans to begin a review of the use of loyalty scheme pricing by supermarkets in early 2024, and will consider how the growth in loyalty scheme pricing is affecting customers and competition in the grocery sector.

Sarah Cardell, Chief Executive of the CMA said that with food price inflation putting a huge strain on household budgets, it is vital competition issues are not adding to the problem.

“While in most cases the leading brands have raised prices more than their own cost increases, own-label products are generally providing cheaper alternatives,” she said.

Responding to the CMA’s report, the British Retail Consortium said it confirmed many of its own findings about the sector.

“While many branded manufacturers had increased their unit profitability during the cost-of-living crisis, savvy consumers have been trading down to supermarket own-label brands in order to get the best possible value,” said Andrew Opie, Director of Food and Sustainability at BRC.

“Retailers will continue to deliver excellent value for their customers. Whether it’s everyday low value, or genuine bargains through loyalty schemes discounts, retailers know they have to demonstrate clear value to get customers through their door.

“However, this continues to be challenged by rising costs, from hundreds of millions in additional business rates, to higher labour costs from the rising NLW.”

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