In August, food and drink emerged as the top-performing categories both in brick-and-mortar stores and online, benefiting from fleeting moments of sunshine during the summer holidays. However, online retailers continue to face challenges, with August recording a 3% year-on-year decrease in online sales.
The non-food product category experienced its strongest month since February, particularly for health and beauty products.
These sales figures reflect the improved consumer confidence observed in August, leading retailers to hope for a sustained upward trend.
“Easing inflation will certainly be welcomed by consumers, but as the rate of price rises falls, so will the extra spending needed by consumers,” noted Helen Dickinson OBE, Chief Executive of the BRC. She further emphasized the potential decline in sales growth in the coming months, even if volume growth remains steady. Additionally, high interest rates and escalating winter energy bills impose caution on households’ spending habits.
To address these concerns, retailers are prioritizing exceptional value offerings, expanding budget ranges, and exploring cost-cutting measures whenever feasible.
Paul Martin, UK Head of Retail at KPMG, expressed relief at the 4.1% growth in retail sales observed in August, considering it a rebound for many retailers. As summer comes to an end, retailers now set their sights firmly on the crucial trading period leading up to Christmas.
While inflation levels appear to be moving in the right direction, albeit more slowly than hoped, savvy shoppers are expected to commence their Christmas bargain hunting earlier this year. Price remains a pivotal factor driving consumer decisions, with individuals seeking out enticing deals to stretch their budgets.
Paul Martin cautioned that shoppers nowadays are more discerning and knowledgeable about the value they receive for their money. Consequently, retailers must exert greater effort to secure every sale. The resilience of the sector, having weathered the pandemic and ongoing cost-of-living crises, is beginning to fade, leading to casualties among high street retailers.
Maintaining consumer confidence as the sector enters the golden quarter is crucial for some businesses, as a successful Christmas trading period will determine their ability to continue operating in 2024.
Sarah Bradbury, CEO of IGD, touched upon the performance of the food & drink sector and highlighted its recovery of lost momentum during August. The World Cup success of the Lionesses uplifted consumer spirits, providing a reason for gatherings around game times.
However, food inflation remains a dominant driver of growth in the sector, with prices remaining high by historical standards, although lower than the peaks observed a few months ago. Shopper sentiment reflected this muted atmosphere in August, coinciding with the disappointing summer weather. IGD’s Shopper Confidence Index experienced a marginal decline following recent gains.
Shoppers continue to express concerns about relatively high food inflation. Fewer individuals now anticipate a drop in food prices within the next year (8% compared to 11% in the previous month). Only 13% expect food prices to return to their 2021 levels.
Steve Ponting, Director at Software AG, urged retailers to remain mindful of the lag effect of supply chain pressures, which can lead to a resurgence in the prices of goods. Although today’s figures show a 4.1% spending increase in August compared to the previous year, attributed to stabilizing inflation levels, the continued supply chain pressures pose challenges.
Ponting highlighted the collapse of the Black Sea grain agreement, which will ultimately elevate grain prices for imported grain and related products. Coupled with an ongoing supply deficit for crude oil, higher oil prices are expected to drive up energy costs, production expenses, and transportation charges, consequently impacting overall price inflation.
Given these uncertainties in supply and demand, businesses must prioritize real-time and accurate data to facilitate rapid decision-making, optimize demand forecasting, and enhance buying processes. As the retail sector approaches the golden quarter, it is crucial for businesses to ensure their operations are well-prepared to navigate matters that may fall beyond their control.