Opinion: A Christmas cracker for grocers, turkey for the rest?

After a torrid few years, the UK’s trio of listed supermarket groups Tesco, Sainsbury’s and Morrisons have stepped firmly on the gas with their divergent strategies in 2017 to put themselves firmly on the front foot.

Tesco, the market leader, revealed at the start of the year that it was acquiring wholesale titan Booker to tap into the rapidly growing out-of-home food market.

And moves to pilot shop-in-shop partnerships with non-food retailers such as Dixons Carphone and Next have epitomised the rediscovery of confidence and a forward-thinking attitude.

“Notwithstanding those self-help tactics, the grocers have also been aided by the return of food price inflation in the wake of the post-Brexit currency fluctuations, boosting sales values in the process”

Sainsbury’s has integrated Argos at pace, is boosting awareness of the Habitat brand it also acquired in the £1.4bn Home Retail deal last year and, like Tesco, is sweating excess store space through a series of other tie-ups and trials.

And Morrisons has pursued an equally noteworthy albeit less capital-driven plan, leveraging its vertically integrated model to resurrect the Safeway brand and begin supplying ambient, fresh and frozen produce to etail giant Amazon and c-store specialist McColl’s.

Notwithstanding those self-help tactics, the grocers have also been aided by the return of food price inflation in the wake of the post-Brexit currency fluctuations, boosting sales values in the process.

Such is their collective momentum, the FTSE Actuaries food retail index, which outperformed the market in 2016, is up a further 4% in 2017 to date, as veteran analyst Nick Bubb observed this week.

General malaise

The contrasting fortunes of the general retail index, down 4% year on year, sum up the precarious position non-food retailers find themselves in with less than a fortnight to go until Santa scrambles down their chimneys.

Retail sales might have increased 0.6% on a like-for-like basis in November, according to BRC-KPMG data, but non-food like-for-likes slipped 1.2% in the quarter ending November 25.

Fragile consumer confidence might have put the brakes on discretionary spending in categories such as fashion, but rising labour costs and increases in other overheads such as rents and business rates have added to the pressure being felt by non-food operators.

The respective troubles of Toys R Us, Feather & Black and Multiyork have been well documented in the past month.

“Where the grocers have implemented self-help policies, many fashion and general merchandise retailers are shooting themselves in the foot at a key time of the year”

Indeed, analysts at Shore Capital have already warned that such turbulent conditions are “likely to lead to more failures over the peak period”.

There’s no doubt the going is tough. But could those facing a gloomy Christmas be doing more to improve their fortunes?

Where the grocers have implemented self-help policies, many fashion and general merchandise retailers are shooting themselves in the foot at a key time of the year.

Participation in Black Friday promotions didn’t spark the revenue boom many had pinned their hopes on, yet plenty have remained hooked on that discounting drug since – at a time of year when they should surely be driving full-price revenues.

Throw the negative impact of the weekend’s snow storm on footfall into the mix, and forecasts of flat sales at best this Christmas are far from surprising.

For under-pressure fashion and general merchandise businesses, flat won’t be enough to herald a happy New Year.