As inflation begins to ease, changes in grocery shopping habits are emerging, but the landscape remains complex.
- Supermarkets are optimistic about a profitable Christmas as consumers gain some financial relief.
- There is a shift toward premium own-brand products, reflecting a willingness to spend more.
- Despite easing inflation, discount retailers like Lidl continue to see strong market performance.
- The preferences for dining out and premium products pose new challenges for traditional supermarkets.
Inflation has begun to ease, and this shift is bringing about notable changes in consumer behaviour at grocery stores. Supermarket executives are hopeful for a profitable Christmas season as consumers start to experience the financial benefits of reduced inflation. They anticipate increased discretionary spending, indicating a positive outlook for the retail market.
One significant trend highlighted by industry leaders is the increase in purchases of premium own-brand products. Nearly two-thirds of Sainsbury’s large shops now include items from their premium ‘Taste the Difference’ range. This move towards higher quality is echoed by recent data from Kantar, showing a 16% rise in premium own-label sales, while value own-label goods saw a 10% decline.
This marks a shift from the recent past, where shoppers gravitated towards more affordable options amidst a surge in grocery prices. In March 2023, grocery inflation peaked at 17.5% but has since dropped to 2.3% by October, allowing consumers more flexibility in their purchasing decisions. Shoppers are increasingly venturing into the premium category, inviting questions about changing food purchasing habits.
While premium products are gaining traction, the allure of discounts remains strong. Data reflects that upmarket retailers have been performing strongly, with Ocado and M&S reporting significant sales increases. However, discount retailer Lidl also achieved record market share as grocery inflation levels normalised, signifying a continued appetite for value among consumers.
The variety of products part of this premium trend is diverse. According to Aldi UK’s CEO, there is a noticeable shift towards products like Wagyu steak and artisan cheeses, pushing boundaries despite a lower cost-of-living pressure. Asda’s Exceptional collection and Waitrose’s revamped No.1 range are capitalising on the premium trend as well.
Despite these shifts, the gap between cheaper own-label products and branded goods is narrowing. Kantar’s Fraser McKevitt notes the struggle between brands and own-label products, with a slight edge in favour of brands. This is a change from last year when own-label products were the focus due to economic pressures.
However, the potential for eating out more frequently poses a challenge to grocery growth. The Office for National Statistics recorded a 0.7% drop in food store volumes, raising questions about consumer behaviour. Food retail adviser Katharine Shipley suggests that dining out is becoming more common and accessible, affecting traditional grocery sales.
Supermarkets are responding to this trend with changes in their product offerings. Initiatives such as M&S expanding its dine-in deals and Waitrose enhancing its food-to-go options aim to attract this evolving consumer base. Meanwhile, Tesco’s CEO believes more people prefer dining in, suggesting different interpretations of consumer habits.
Retailers will need to adapt to these changes to succeed in a shifting market landscape. Grocery players like Ocado and Lidl, who cater to both premium and value segments, are well-positioned to thrive. M&S is also evolving, focusing on offering value alongside its premium offerings, a move that has bolstered its market perception.
There is, however, underlying uncertainty due to recent fiscal policies, specifically tax increases. Sainsbury’s is among the businesses bracing for higher costs, hinting at possible future price hikes. Yet, Asda’s chairman remains optimistic about the Christmas shopping season, hoping for economic improvement and consumer stability.
While easing inflation presents opportunities for retailers, the grocery sector must navigate diverse consumer preferences and economic uncertainties.
