Express Checkout – Christmas 2017

 

Christmas 2017 

The Grocery Insight view

Introduction

The week that was, a huge week of Christmas results and Grocery Insight will take this opportunity to cover off some of the results, the statements within and try pick out any key themes. The discounters and Asda are not included, but will be in coming updates.

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Key Trends

• Price important this Christmas, but customers are resilient and spending on premium continued, albeit in different areas.
• Everyone talks inflation at 3.7%. But the retailers run at different levels given their promotions. Salmon has risen demonstrably but offers mitigate this.
• Clearance has been significant in some areas, Tins of Chocolates have been hard hit – sign of customers not willing to spend frivolously.
• Non Food in severe slowdown, economic headwinds impacting but let’s not forget it has moved online in any case(!)
• No one ‘lagging’ food retailer in the sector, Asda seem to have recovered and looked strong in store when visiting pre Christmas. Who is being eaten(?)
• Outside Grocery, woes for Debenhams and House of Fraser. Far too easy to ‘forget’ these stores from a customer viewpoint.

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Morrisons

10 weeks to 7th January. +2.8%
6 weeks to 7th January. +3.7%

The week started off with the boys from Bradford, and after a number of years where sales fell off a cliff (to be polite), they’re back in the groove and reported significant growth on a like for like basis.

It was significant for two reasons. 1) The general consensus was nowhere near their actual results, predictions were c.1% and 2) This is serious growth on growth.

First point, consensus is just that, the analysts have their views and many don’t visit the north at the best of times, so therefore don’t grasp how Morrisons are turning things around when Aldi / Lidl open so many stores here. Plus there was a school of thought that some like for like performance was centric to former poor figures, or aided by inflation.

Second point, growth on growth is difficult but the sign of a recovering retailer. If we think that last year (early 2017) Morrisons reported very strong growth and had their strongest performance in seven years. They were 0.1% off equalling that this year.

Things weren’t perfect, recovery post Christmas was a struggle and there were signs of availability challenges in Christmas week. They haven’t been caught with clearance like some other retailers (namely Tins of Chocolate) but they have had some issues as the market has done.

“The Best” which was revived in October 2016 was a big winner as customers still wanted premium goods but put their trust in their core supermarket rather than decamping to a Sainsbury’s / M&S.
That focus on own label vs. Discounters having a secondary effect? Customers then trust their core retailer to get the premium right too?

Wholesale was pleasing, these secondary channels that Morrisons have entered such as convenience supply benefitted the like for like. When the end customer is busy, so is the supplier….

Sainsbury’s

15 weeks to 6th January. (Total sales) +1.1% (incl VAT)

A long old quarter for Sainsbury’s and favourable for them given the plethora of events that take place in this period, alongside Black Friday of course. Excellent operations and availability were called out by Sainsbury’s which is curious as that’s often a given for them, but there was evidence of them struggling a bit in this regard this year.

They have made changes to their operation which has impacted, perhaps not to the Thermonuclear war standards that we saw in an article in the Mail…. But still, they are behind their former great standards in terms of store fill and presentation.

Their results are difficult to unpick as they now include Argos in the overall number as ‘one group’, so food is hard to track in the release, although they did note that Groceries were up 2.3% but it’s difficult to grasp what proportion is online as they don’t split that out either.

However it was a decent result for Sainsbury’s, although behind the curve a little given Morrisons performance the day before. They are working harder on value with stable pricing and aren’t at the ‘insult’ price levels they once were perhaps. However this trade off between price and store standards is an interesting one, as they formerly traded on a belief that store standards are vital and consistency is everything. They have given that up a little in recent months and that can be a difficult message to relay to customers, as they’re not as cheap as their store standards degradation may indicate.

A fair point was made by Sainsbury’s on the call in that their premium brand (Taste the Difference) does operate at a higher base so has to work harder to grow sales. However 185 new lines for Christmas and ‘almost half’ were premium (c.90) resulted in a 6% sales rise. Is that enough?

Inflation plays a part everywhere, although it’s not necessarily at that headline level of 3.7%. Sainsbury’s were more promotional than the year before with more deals on Wines, Clothing and also entering the cheaper Produce arena too. Their profits uplift pleased the investors and took the heat out of any challenges on sales growth perhaps, but the longer term outlook for non food and discretionary spend isn’t good.

Therefore buying a chain that specialises in those areas wasn’t perhaps the wisest call. However Sainsbury’s will hope their moves to get Argos in to the Sainsbury’s stores and drive footfall will see them right on that front.

Tesc0

19 weeks to 6th January. +2.3% (includes Ireland)
UK: +1.9%

The City wasn’t cheered by this update as shares have fallen this morning, not dramatically but nevertheless… It’s difficult with the investors to know what they want, as every investor is different….

It was a long quarter from Tesco, 19 weeks is huge and encompasses even more favourable events than Sainsbury’s. However Tesco were trading against growth and delivering growth. Very aggressive on deals in the quarter, with several promotions occurring for the first time. Activity on Wines and Clothing was new in some cases but this quarter also had a 3 week long Spend £60 / Save 10p fuel promotion too.

These were relatively decent results from Tesco, some of it was hyped by the press reporting they’d ‘win Christmas’ only for them not to do so. To be fair, it’s a stronger time of year for them given that ‘Extra’ comes in to its own as a format.

Usual call outs for them were the positive nature around volume, Fresh Food continues to grow nicely. Ahead of the market, although their precise definition of the market doesn’t include discounters which is somewhat questionable. Just having the space and range isn’t enough at Christmas, as we’ve seen in the past. Tesco were very well set up and I felt looked the strongest of the big four in terms of their execution and trading around the shop floor.

Interesting for Tesco to call out the Palmer&Harvey demise as one that impacted their like for like figures, dramatically so with a 0.5% impact. However P&H going to the wall wasn’t a state secret, it had become clear they were having financial difficulties for a number of months after all.

I was also surprised that Cigarettes were still such an impact on sales, as everyone seems to Vape these days (although these are presumably also included in the like for like sales). The higher pack price contributes a fair amount to the like for like sales which is probably the reason they called it out.

A pack of 20 Silk Cut cigarettes is £7.65 today, you have to sell 27 bags of Potatoes at 29p each (£7.83) to achieve a similar return. They do love a sacrificial Cow at Christmas though, P&H / Cigarettes this year, whereas last year it was the lack of Clubcard Boost vouchers that saw the like for likes not progress.

They’re doing many of the right things and continue to be very competitive on price. Retail is never won by one Christmas either way.

M&S

13 weeks to 30th December. Food -0.4%
Home and Clothing. -2.8%
Total. -1.4%

Declines all the way from M&S but this was expected to an extent, what doesn’t help M&S is that their 30 goal a season striker has, well, stopped scoring. The food business appears to be reaching a plateau and it’s not entirely clear why. Increased competition elsewhere has as much to do with it rather than blatant own goals in store.

Any questions over Steve Rowe’s tenure and recovery plan are ridiculous quite frankly. Whilst I like a football analogy, a retail CEO needs a longer lifespan.

Although stores need to improve, their challenges come around price and value, with inflation leaving their heavily exposed Fresh business under pressure… It’s not easy. Promotions on ready meals that creep up to 3 for £10 become a real challenge for customers, who see that £10 price point and don’t buy.

There was a ‘new lower price’ campaign landed in the quarter, but that struggled to get traction for me. Execution in store was hit and miss and it was very close to the Waitrose Essential price campaign which I don’t think helped matters either. Other challenges were the aggressive Wine campaigns which saw Waitrose, Tesco and Sainsbury’s all running 25% off 6 bottles which can only impact the business given their strength here.

Food quality was undoubtedly good, price points were hefty but the increasing strength and confidence customers have with Morrisons, Asda and to an extent Tesco on quality for own label, I feel means that customers then trust those retailers with their premium offerings. Looking back at the archive of images, M&S were very aggressive on the gold packaged premium, with some excellent lines, but the prices were hefty and perhaps misjudged the market somewhat.

There was a need to balance the two and customers view M&S core ranges as a treat in themselves, therefore the premium ranges can be a stretch for many. Lots will be written about Clothing and Home and the various issues there, it’s a drag on the business but also ultimately, in their big units harms footfall. It harms their Food stores too arguably.

There are key themes that come out for M&S –

• Online is vital for these categories, Home particularly, sometimes to the detriment of the physical store.
• Click/Collect and multiple locations are therefore vital to drive fulfilment but also the footfall for the retailer is vital. It drives sales once customers arrive to pick up their parcels. Sainsbury’s quote between 1-2% uplifts when an Argos concession store drops in to a supermarket.

Therefore it’s Chicken / Egg with M&S. Online remains a challenge for them as it’s a difficult website to use, and their customer base is ‘silver surfer’ and then some. Their collections and ranges miss the point in many cases on Home which then means click/collect is impacted = lower traffic to stores.

I was struck on 22nd December when shopping, a larger unit with a packed Food store. Like the last days on Earth with customers everywhere and staff struggling to fill the shelves. Visiting the nearby Clothing / Health/Beauty areas (still chance for gifting with the core range). It was like a ghost town. That’s the biggest challenge, Non food and Clothing need to be better for the business as a whole, but, they also need to help their 30 goal a season striker back to form…

As for Clothing, Meghan will help them (Jumper back in stock today!) but they need to bite the bullet and get some brands in to carve up the space and bring some excitement back. Don’t go full John Lewis, but let’s get some brands in and see what they deliver, particularly in areas where M&S miss entirely, like anyone from aged 18 to 50. (Male or Female actually).

Their kids range is improving and needs to continue this can be a huge winner with families, many will buy School Uniform from M&S but little else, why?

Waitrose

6 weeks to 30th December. +1.5%

Respectable at the start of the week, arguably less enthusiastic post the results elsewhere. But these figures from Waitrose aren’t terrible, they’re not great either but their 6 week period excludes New Years eve which would have put another 0.7% on the figures. This end of the market, rather than being insulated as it was during the ‘Great Recession’ when everyone went to Aldi but then back to Waitrose for their ‘nicer’ things is now left exposed somewhat.

Aldi now sell ‘nice things’ all year round and indeed at Christmas, sell even more ‘nice things’ and flood their special buys with it. It’s not even that Aldi or Lidl won numerous awards this year (they did ok) but it’s more that they expanded on premium in smart ways (about 8 Mince Pie varieties) and managed to get some 3/4 premium Fudge based products too.

It’s not just discounters with their cult following…. Morrisons and Asda notably, alongside Tesco (back in the groove) are pushing on own label to nullify discounters. As customers become accustomed to their own label, then they’re attracted to the premium ranges which then means the ’secondary / special’ shop can be lost somewhat…..

Premium preformed well with a +4.1% sales performance and Heston struck gold with one line (Lazy Gin) that hit the Gin trend and ended up selling a month’s worth of stock in a day.

The outlook for 2018 will be challenging for Waitrose, with the price focus strengthening for customers. Inflation will settle down as we ‘lap’ the costs but wages frozen, fuelled by uncertainty is a major challenge. Of course, Waitrose have an affluent customer base but everyone needs new customers and Waitrose need to continue with their efforts to enhance their offering to ensure they’re not ‘too’ expensive versus the market.

Demystifying their loyalty scheme would be useful, ‘my offers’ appear to has stalled somewhat and I wonder if the novelty element wears off. I.E. customers log in for the first couple of months then may need prompting to do more…

Not an easy 2018 in prospect for Waitrose, but their longer term plan around store refits looks sensible….

Much more to come on this of course, throughout the year. Grocery Insight will aim to bring ‘Express Checkout’ (IE the top bit!) as a blog post each fortnight.

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Grocery Insight provide market insight on the UK sector with a focus on individual retailers such as Tesco. This insight is useful to various stakeholders and due to my store based focus. Insight can be delivered to suppliers to focus on growth opportunities, analysts and investors to assess the business performance and long term outlook and retailers themselves to assess best practice.