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The Boris Bounce Was More of a Christmas Turkey

Andrea Felsted
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The Boris Bounce Was More of a Christmas Turkey

(Bloomberg Opinion) -- Flashback to mid-December. British voters had just delivered a decisive national election victory to Boris Johnson’s Conservatives with two full weekends left before Christmas. Expectations were high that shoppers, giddy at the prospect of an end to political gridlock and repetitive threats of hard Brexit, would rush to the stores to make up for lost time in their holiday preparations and provide a much-needed boost for the country’s big supermarket chains.

Anyone in the industry expecting a Boris bounce was sorely disappointed. Numbers out Tuesday show the U.K.’s largest food retailers suffered from subdued trading over the crucial Christmas and New Year’s period.

Wm Morrison Supermarkets Plc said consumers remained cautious, even if there was a bit of relief following the election result. Still, it wasn’t enough to make up for belt tightening. Although customers put the same amount of Christmas fare in their baskets, the number of times they shopped was marginally down, it said.

It didn’t help that a price war broke out in the run up to the holidays, with the U.K. arms of the German discount chains Lidl and Aldi slashing prices. They drew shoppers with offers, such as bags of Christmas vegetables from as little as 15 pence. Morrison was offering three British vegetables for one pound, including a 2.5 kg bag of Maris Piper potatoes, described by Chief Executive Officer David Potts as a knock-out offer. But with intense competition from the discounters, perhaps it just wasn’t knock out enough. Where consumers treated themselves, it seems they opted for Aldi’s Specially Selected mince pies.

Moderating food price inflation was also a hindrance. Morrison estimated that over the past couple of months food-price inflation was close to zero. When food prices are rising, the value of supermarkets’ sales is automatically boosted.

Morrison may turn out to be one of the weakest performers. But trading across the whole of the U.K. food retail market was lackluster, according to industry research group Kantar. 2019 saw the lowest rate of growth over the Christmas period since 2015, it said.

What oxygen there is in the market is feeding the discount supermarkets. Excluding online-only supermarket Ocado Group Plc, Lidl was the strongest performer in the 12 weeks to Dec. 29, with sales up by 10.3%, according to Kantar. Aldi also expanded its sales by 5.9%, a slower rate of growth than in the past, but still way ahead of the so-called big four supermarkets, Tesco, J Sainsbury Plc, Walmart Inc.’s U.K. arm Asda and Morrison.

Sainsbury, which reports on Wednesday, may be more upbeat than Morrison, as its stronghold is in the southeast, where there is less competition from the discounters, and it tends to outperform at Christmas. Tesco may also do better, as it has been one of the stronger performers over the past few months, and that may continue.

But it provides little comfort that all of the big four saw their sales fall in the 12 weeks to Dec. 29, compared with the year earlier, according to Kantar.

With U.K. wage growth still ahead of inflation, and consumer confidence showing some improvement, Johnson’s resounding victory and the certainty it appeared to provide around Britain’s departure from the European Union was supposed to boost holiday shopping. Coming in mid-December, it probably came too late to make a noticeable impact on spending on clothing and gifts, but it should have had a positive impact on supermarket shopping. That clearly didn’t happen, and that is a worrying sign for grocers as they move into what is traditionally a lean time after the holidays. This year it could be even more painful, as many consumers move out of categories such as alcohol and meat, as trends like Dry January and Veganuary gain pace.

As for Morrison, the company needs to be on its guard. When food prices are rising, all of the big four supermarkets can prosper at the same time. When there is little growth, grocers need to steal sales from a weaker rival. This time last year, that was looking like Sainsbury. Now Morrison looks vulnerable. It has a strong management team, robust balance sheet, more than 85% freehold property and a developing wholesale business. Even so, it needs to get its sales growth back on track, to make make sure it does not become 2020’s Christmas feast.

To contact the author of this story: Andrea Felsted at afelsted@bloomberg.net

To contact the editor responsible for this story: Melissa Pozsgay at mpozsgay@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Andrea Felsted is a Bloomberg Opinion columnist covering the consumer and retail industries. She previously worked at the Financial Times.

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