Are large UK Supermarkets struggling again?

The sales of our largest supermarkets appear to be struggling again, ending 2024 on a particular low, if the latest ONS data is to be believed. With higher Employer National Insurance, Living Wages and Business Rates in the offing, it’s perhaps little wonder that Sainsbury’s and Morrisons have started the New Year by announcing new redundancy programmes. This slowdown in year-end supermarket sales probably had little to do with new government policies, when all is said and done. But the impact of the new measures is certainly going to pile further pressure on our biggest supermarkets in 2025. Perhaps it is little wonder in this backdrop that many are also talking about price increases in the road ahead.

I mentioned at the end of last week that there was something odd going on in the depths of the ONS Retail Sales dataset as it pertains to large supermarkets. This article is what I was talking about.

ONS breaks down overall retail sales mostly by the type of retailer making the sale. Excluding petrol, there are three main sub-categories, called Predominantly Food, Predominantly Non-Food, and Non-Store Retail. It is worth re-emphasising here that these categories refer to the type of retailer and not the goods being sold, although there is a high correlation between the two. So, the category “Predominantly Food” retail sales actually refer to the sales of retailers who predominantly sell food. It sounds obvious when I write it this way – trust me, it is easy to get confused.

Either way, retail sales fell in December on account of Predominantly Food sales and Non-Store Retail sales: indeed, both fell by 1.9% on the month in volume terms. Figure 1 presents this data in one of the ways we like to look at it (the average of the last three months data versus equivalent data six months earlier, then annualised).

Figure 1

While most of the retail sales data presented by ONS breaks sales down by the type of retailer selling them, there is one set of numbers that cut the data by the type of goods being sold. ONS do this by asking the largest retailers – normally around 50 – to break out their sales by the type of good being sold (the choice being “Food, Drink & Tobacco”, “Clothing & Footwear”, “Household Goods” and “Other Non-Food”). This dataset is only presented on a raw basis (i.e. ONS neither seasonally adjusts it nor do they present it in volume terms). However, there is enough other data elsewhere in the retail sales database that we can compare sales of Grocery Retailers or Grocers (aka “Predominantly Food”) on the one hand with Grocery Sales or Groceries (aka “Food, Drink & Tobacco”) on the other. Figure 2 compares these two series, and we can see straight away over the past decade that sales of Groceries (i.e. the goods themselves) have been catching up with sales of Grocers (i.e. the supermarkets). Remember here that Grocers sell more than just groceries, while groceries are not only sold by Grocers. So where (in Figure 2) Grocery retailer sales have generally exceeded Grocery retail sales, this means that Grocers were selling more non-Groceries than non-Grocers were selling Groceries (don’t worry if this isn’t 100% clear yet, by the way).

Figure 2

Now let’s look at the gap between these two series, shown in Figure 3, because this is where things get very interesting in terms of what has happened in the past three months.

Figure 3

Clearly, something unusually negative has happened in the past couple of months here. But remember now that the data in Figures 2 and 3 is not seasonally adjusted. So, let’s look (in Figure 4) at what has happened every year to the Grocer-Grocery gap just in the period from October to December.

Figure 4

Bingo! Sales of Grocers (aka Predominantly Food) used to benefit in Q4 as they stocked up and sold more non-groceries than non-Grocers stocked up and sold Groceries (aka Food, Drink & Tobacco). But a little in 2023 and a lot more in 2024, non-Grocers have now stolen a distinct march on Grocers in the opposite direction.

Some of this change will be due to the resurgence of Marks & Spencer (a non-Grocer as far as ONS is concerned, though it sells groceries), to be sure. Although the following figures are not exactly comparable, M&S announced 8.9% growth for its food sales over Christmas (13 weeks to 28 Dec), compared with Tesco (6 weeks to 4 Jan) at 4.7%

But the bigger picture we see is that while supermarkets are – as ever – battling for market share among themselves, they are losing it to non-Grocers, and they did so to a degree in Q4’24 unseen in at least the past decade. And if you want further proof, look no further (in Figure 5) at some of the retail sales categories that performed best in December.

Figure 5

In fact, it is even worse than this, because Large Grocers are also losing market share to Small Grocers (upper line in Figure 6), and also to Specialist Food Retailers (gap between the upper line and the lower line), not just generally over the course of the past decade, but specifically in the past three months as well.

Figure 6

Facing higher Employer National Insurance, Business Rates, Living Wages and Packaging Levies in the period now ahead, we think this is why – having tidied up and counted their sales over Christmas – Sainsbury’s and Morrisons were so quick in the New Year to announce new redundancy programmes. We are also starting to understand why grocers are also sounding alarm over price increases. In short, they are worried about 2025 as they face a combination of poor trading conditions, heightened competition from outside the narrow UK supermarket sector, AND the impact of new government policy measures (only the latter of which can probably fairly be ‘blamed’ on the government).

But remember here that Predominantly Food Retailers and Predominantly Non-Food Retailers are currently in very different shape, with the latter having had a much better Christmas and, as we wrote last week, arguably seeing trading conditions at end-2024 that were the best they may have seen in a decade.

And that brings us to Non-Store Retail, whose sales also fell in December. And it turns out – we think – that Non-Store Retail faces quite similar problems to Predominantly Food Retail, which is to say they are struggling as a retailer category to retain market share against Predominantly Non-Food Retail. But to see the data on this, you will have to tune in again next time.

Sorry!