Weakened food industry hopes for better in 2012

By Graham Holter

- Last updated on GMT

Related tags: Bnp paribas

Consumer sales are expected to be low during the Christmas period
Consumer sales are expected to be low during the Christmas period
Food industry experts have expressed concern about “worryingly weak” consumer sales in the run-up to Christmas – but say pressure may ease as the New Year unfolds.

Like-for-like food sales were up just 1.8% in the August to October quarter, according to the British Retail Consortium (BRC).

BRC director general Stephen Robertson said there had been “very little volume growth​” in food figures, and total retail sales were flat. “This is evidence of the basic weakness of consumer confidence and demand, and worrying this close to Christmas. It’s clear customers are cutting back, whatever they’re​ buying,” he said.

Joanne Denney-Finch, chief executive of the Institute of Grocery Distribution (IGD), said: “The constant trickle of negative economic news, such as the euro crisis, has not helped to improve consumer sentiment. Shoppers are watching every pound they spend and, with thoughts turning to Christmas, they may be making some sacrifices now in order to end the year on a high​.”

Depression

Shore Capital analysts Dr Clive Black and Darren Shirley warned that “the UK consumer is in a tough spot and a consumer recession could indeed be a depression​”.

In a note to investors they said there is “evidence of trading down from beef and lamb – which are increasingly less affordable on a regular basis for many shoppers – into pork and poultry products​”.

They added: “There is also renewed support for home baking and scratch cooking, features very evident at the time of the Lehman financial crisis. While not wholesale trading down, with the margins on food ingredients far from unfavourable in many cases, these are noteworthy developments that we need to keep an eye on.

Shirley and Black also said they would expect November’s momentum to be much the same as October before the trade builds up for a substantial Saturday Christmas.

We sense that many households in the UK are saving up for the festive season and this is impacting recent high street trade. IGD data suggests that six out of 10 UK shoppers will spend the same or more on Christmas than last year,”​ they added.

Shore Capital said although December might be “OK​” for retail sales, the prospects for November, January and February were gloomier.

Exane BNP Paribas analyst Jeff Stent said: “One thing I have learned is never predict Christmas, because you’ll inevitably be wrong.

“I suspect for food manufacturers it won’t be great but I don’t think it will be disastrous. In my experience the UK consumer tends to get bored of being frugal​.”

Less inflation

But prospects for 2012 may not be as bleak for food producers as they were in 2011. “Certainly input cost pressure will ease,​” said Stent. “However, these guys [food manufacturers] have other overheads as well. Some of them may need some pricing [increases] and the ability to get any is going to be difficult.​”

Stent said that moderate cost inflation was often more problematic for suppliers, because retailers were less likely to respond to it with consumer pricing than when there is large, across-the-board increases in raw material costs.

Related topics: Market Trends

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