UK supermarkets toast record Christmas but inflation's return drives prices up

UK supermarkets enjoyed a Christmas to remember, with sales rising at the fastest pace in over two years, but inflation returned to the grocery market for the first time since 2014, figures released on Tuesday (10 January) by Kantar Worldpanel showed.

According to data from the industry research group, sales in supermarkets across Britain rose 1.8% year-on-year in the 12 weeks to 1 January, the fastest rate of growth since June 2014, as consumers forked out £480m more than in the corresponding period in 2015.

However, the weaker pound began to make its presence felt in the market, as food prices rose 0.2% in the period, the first increase following two years of deflation. Admittedly, the increment was not uniform, as some products, such as butter and fish, became more expensive, while others, such as bacon and eggs, became cheaper.

"The long-anticipated return to inflation suggests that the speed of growth in the overall market will continue to hasten in 2017, and both consumers and retailers will be looking at ways to avoid increasing the cost of the weekly shop," said Fraser McKevitt, head of retail and consumer insight at Kantar Worldpanel.

"Last year retailers focused on simplifying their discounts and offers, and the level of promotional sales has fallen to 37% as a result – the lowest level over Christmas since 2009."

Tesco was the big winner over the period, as the retailer posted a 1.3% year-on-year increase in sales in the period, marking the fourth consecutive month of growth and offering further proof the turnaround plan implemented by chief executive David Lewis has begun to pay dividends.

The FTSE 100-listed group outperformed the rest of the industry's "Big Four", with sales at Morrisons growing 1.2%, while Asda and Sainsbury's saw sales decline 2.4% and 0.1% year-on-year respectively.

The drop means sales at the two chains have now fallen for a fourth consecutive month.

Discount chains continued to outperform the market, with sales at Aldi and Lidl growing by 11.8% and 7.5% respectively, while their market share rose to 6.0%, while Lidl's and 4.4% respectively. Meanwhile, sales at Iceland were 9.6% higher than in the corresponding period 12 months earlier and Waitrose and the Co-op posted a 3% and 2.4% increase respectively.

Meanwhile, the latest BRC-KPMG Online Retail Sales Monitor showed food shopping accounted for almost half the 1% expansion recorded across the retail sector in December. According to the report, food retailers saw a 1.1% increase in like-for-like sales with spending rising by 2.4% on a total basis, well ahead of the year's average growth of 1%.