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Supermarkets on course for low growth as food deflation hits

Published:  04 February, 2015

Supermarkets are set to see continued low levels of growth as food deflation hits record lows, says a joint report from the BRC and Nielsen. 

Supermarkets are set to see continued low levels of growth as food deflation hits record lows, says a joint report from the BRC and Nielsen.

The latest figures show that overall shop prices continued their recent declines, reporting for the 21st consecutive month a drop of 1.3% for January 2015. 

Helen DickinsonBritish Retail Consortium’s Helen Dickinson

"For 21 consecutive months prices in Britain's shops have fallen, this month by -1.3 per cent. It's the second time in three months that we've seen food prices fall, accelerating to their lowest levels on record," said British Retail Consortium general director, Helen Dickinson.

Specifically, food suffered an annual deflation of 0.5% in January after reporting an improvement in December with prices inflating 0.1%, according to the BRC-Nielsen report.

Mike Watkins, the head of retailer and business insight at Nielsen, said: "Over the last six months we have seen food inflation falling and as we start 2015, we now have food deflation. Whilst falling prices are of course welcomed by shoppers, the impact is that there is only marginal value sales growth across the industry. With further price cutting expected by the major supermarkets the near term outlook is for the continuation of a low growth trading environment."

This news comes against the backdrop of Kantar Worldpanel reporting that the grocery retail channel is facing the most competitive environment since Kantar started keeping records.

Fraser McKevitt, the head of retail & consumer insight at Kantar, said last month in regards to end of the year food figures: "In growth terms there really isn't much to separate the big four, all within 0.5% of each other. Easily the tightest race since our records began in 1994."

However, it is not all bad news for retailers, according to the BRC-Nielsen report. The halving of oil prices has helped to mitigate some of the impacts of the drop in food prices for grocers. Retailers have also seen an uptick in consumer spending as the economy has been improving and shoppers disposable income has gone up.

Dickinson said: "The halving of the oil price since the summer has helped the retail supply chains with the impact of these falls, continuing to make their way through to shop prices. With the outlook for inflation low, the jobs market robust and rising real incomes gathering pace, the outlook for consumer spending looks positive. Deflation doesn't always translate into bad news for retailers."

However Dickinson does warn that given the incredibly competitive supermarket environment those retailers not passing savings onto customers could lose shoppers.

"Retail businesses will continue to see decreases in their own input costs for the foreseeable future. To remain competitive, retailers will continue passing these savings on to the consumer," she said.