Supermarket bosses are betting on a good Christmas this year as shoppers start to feel the benefits of easing inflation on discretionary spending.
Consumers have been trading up throughout the year, with Sainsbury’s boss Simon Roberts mentioning that nearly two out of three of its big shops now include products from its premium own-brand Taste the Difference range.
Recent data from Kantar also showed that premium own-label sales have increased by nearly 16% year-on-year, while value own-label products declined 10%.
The behaviour is a notable change to when shoppers turned to more affordable supermarket own-brand products and reducing their reliance on big-name brands back in 2021 when food prices surged.
Grocery inflation, which soared to a 17.5% in March 2023, dramatically eased to just 2.3% this October as macro economic pressures pushing up prices eased.
As more shoppers turn to the premium own-label category, has how we buy food started to change?
How are grocery habits changing?
While it’s plausible that customers could be willing to splash more cash on groceries as inflation eases, recent findings seem to paint a nuanced picture of consumer behaviour.
Upmarket retailers have thrived in recent months with NIQ data showing that Ocado remained the fastest growing retailer as sales surged 15.9% in the 12 weeks to 5 October. M&S was next in line with a 12.4% sales jump.
Waitrose has also been picking up shoppers, with the supermarket gaining market share for the first time in over two years in July, according to Kantar data.
On the other hand, discounter Lidl achieved record market share in May as grocery inflation returned to ‘more normal’ levels, suggesting that people are still seeking value.
Shoppers starting to trade up
In terms of the types of products people are buying, the premium own-label category is seeing the most growth overall.
Aldi UK CEO Giles Hurley noted in September that shoppers were starting to trade up as cost-of-living pressures eased, with customers increasingly opting for its premium own-brand lines.
He said customers were increasingly opting for items such as Wagyu steak, artisan cheeses, ready meals, and brioche buns.
Asda and Waitrose have both taken note of the growing trend towards premium lines, with Asda launching its Exceptional collection and Waitrose redesigning its No.1 range earlier this year.
Kantar head of retail and consumer insight Fraser McKevitt also explains as inflation has lowered, the gap between shoppers buying cheaper and branded groceries has “narrowed”.
“It’s pretty neck and neck between brands and own-label at the moment, brands are slightly ahead but not considerably,” he says.
This is big difference from when shoppers sought out mostly own-label lines for their weekly shopping in 2022, with Kantar data for this time last year showing that value own-brand sales jumped 10.3% compared to a much slower 0.4% growth for branded goods.
McKevitt notes that while shoppers may be “open to the idea of trading up again”, inflation has lowered rather than become negative, meaning “those prices rises of the last two years in most categories are baked in now”.
“I think they are willing to give it a go but they’re not necessarily rushing back to the more expensive products.”
The retail expert also points out: “It’s not clear if it’s a trading up option or trading down but premium own-label lines continue to be the fastest-growing part of the market.
“For some people, that’s them moving up from the standard own-label and for others it’s trading down from brands.”
With regards to whether consumers are buying more groceries, the Office for National Statistics show food store volumes slipped 0.7% in October.
With inflation easing, it raises the question of whether consumers are opting to dine out more often – and how much this poses a threat to supermarkets.
Food retail adviser Katharine Shipley argues: “Dining out is on the increase but in a more spontaneous way and to more accessible restaurants.”
“The biggest threat to retailers is the more on-the-go, out-of-home eating,” she notes, pointing out that supermarkets have introduced more hot food and on-the-go items in response.
Examples of this include M&S expanding its dine-in deal range with more than 20 new products and Waitrose unveiling its new food-to-go offer in its refurbished John Barnes store on Finchley Road in London earlier this year.
However, Tesco CEO Ken Murphy says: “I think you are seeing more people dine in. We see it reflected in a tough catering market and a more buoyant retail market.”
Which supermarkets are winning?
There are inevitably some retailers who will benefit more from these changing grocery habits.
With both Ocado and Lidl the fastest growing retailers, according to this month’s NIQ data, there is still demand for both the premium and discount supermarkets alike.
Supermarkets that cater to consumer desire for value and options to treat themselves stand to do well.
M&S, traditionally seen as an upmarket retailer, has been boosting its value credentials and this month said it had witnessed its “strongest value perception in over a decade” as it vies to attract shoppers gently loosening their purse strings.
Waitrose’s investment to relaunching its premium No1 range this half seems well timed to capitalise on customers willing to spend slightly more.
One thorn in the side is last month’s Budget, which has spooked both consumers and retailers.
Supermarket bosses have since warned that food prices could rise again as a result of increased cost pressures from the hike in employers’ National Insurance contributions.
Sainsbury’s’ Roberts warned the chain had “some difficult decisions to take as a result” from the impending 50% rise to its tax bill as it just didn’t have “the capacity to absorb this level of unexpected cost inflation”.
He said the £140m added to its cost base could “beat through into higher inflation”.
Despite this, looking ahead to Christmas, Asda chairman Lord Rose seemed positive about consumer grocery habits over the festive season.
“The country’s had a tough year and we’ve had a change of government. I think people wanted to see forward – they like to see a runway ahead of them.”
“Now that they’ve heard the worst news about the Budget, I think people will want to have a time where they get together with their families and let’s hope that we see some growth in the economy. We’ve got to be positive,” he insists.
Although there are some green shoots as inflation eases, a sense of caution remains. Retailers that offer customers both value alongside reasons to splurge look likely to win.
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