At the end of a turbulent year in UK retailing, IGD’s senior retail analyst and UK market specialist Nick Gladding asks what can the sector expect this Christmas as he runs through the forecast for the festive season
A challenging backdrop
This year IGD predicts shoppers will spend £20.3 billion on groceries over the festive period, 1.4% more than the £20bn spent in 2014. It may appear that growth is at low levels – weighed down both by the unprecedented deflation in the sector cutting the amount shoppers need to spend on groceries and by a reduction in couponing – but it is growth.
Improved earnings have seen an increase in shoppers’ investing in big ticket and leisure purchases and this will also help to deliver volume responses to the recent and major price investments made by the multiples.
IGD expected Black Friday to provide food retailers with less of a boost than last year and results will be in shortly. A growing number of retailers see it as an unhelpful distraction in the build up to Christmas and in a surprise move Asda refocused the event on its fuel savings rather than category-wide reductions we saw last year. That said, for many Black Friday continues to be an important part pre-Christmas marketing tactics, in-store and online; Tesco offered heavy discounts across over 200 mainly electricals products and Morrisons put its own twist on the event with its “Black Five Days” campaign offering daily deals across the week running up to the main event.
Our growth forecast fits with the more positive mood from consumers surveyed in our ShopperVista research:
A fifth (20%) tell us they plan to spend more on food and drink this year than last, up from with 16% last year
18% also say they will spend more on their Christmas meal
A quarter more on Christmas presents
Discount to be the fastest growing channel
IGD’s research found 69% of shoppers say they will use food discounters more this Christmas.
While saving money is the main reason for doing this, the quality of products and the ability to buy new or different items are also powerful motivators.
Overall, IGD expects the discount channel to grow by 16.5% to £1.7bn across the five weeks between 20th November and 26th December, driven by strong Christmas campaigns that focus on product quality.
Discounter growth will also be lifted by new store openings by Aldi and Lidl but also increased grocery sales at high street operators like Poundland and B&M who have grown in scale over recent years.
Rapid growth in online
Our ShopperVista research also found that more people say they will do a big Christmas shop online – 17% this year compared to 14% last.
Top reasons people gave us for grocery shopping online were:
To avoid crowds or queues in-store (48%)
To save time (44%)
The attractiveness of online shopping has been boosted through the year by significant investments to improve the home delivery services, particularly in terms of the quality of fresh items and improved access to delivery slots thanks to the opening of new distribution infrastructure. In addition, more online shoppers are now members of retailers’ delivery pass schemes, giving them priority booking for Christmas slots.
Developments such as same day deliveries by Tesco and Asda, the launch of Sainsbury’s TU clothing online, and the expansion of Morrison’s online operations will also help drive increase the popularity of online home delivery. In addition, IGD expects click and collect will be more widely used by shoppers, following the rollout of the service to new locations.
A critical time for larger stores
For superstores and supermarkets, Christmas will be a key test of changes made to big stores in an effort to make them more attractive to shoppers. Through the year we have seen changes by some of the biggest food and grocery retailers; Tesco has simplified ranges and improved customer service and Sainsbury’s is developing new mission based layouts, for example.
Joanne Denney-Finch, IGD chief executive, says:
“Underneath the headline sales figures, this will be a season of opportunity for innovative retailers and suppliers. Six in ten (59%) shoppers feel that Christmas is the best time of year to splash out on food and groceries and nearly half (46%) say they’re tempted to buy novel and exclusive food and grocery products to help with the celebrations. So there’s a particular opportunity this year for food companies to showcase the quality and uniqueness of their products.”