Looking at last week’s ONS numbers, the slowdown I forecast six months ago for 2015 is clearly emerging. The first 3 months of this calendar year saw sales by value grow by 2.8%, by no means a disaster but some way behind the 4.5% increase of Q1 2014. The main culprit at headline level is food – growth of just 0.8% in Q1 2015 versus 1.7% last year. By comparison, non-foods registered a healthy looking rise of 3.8% but this too is markedly down on the previous year’s 6.0%.
Beneath these numbers is significant, persistent price deflation. In food the trend is down – currently around -7.5% yoy. Non-foods are far less extreme at just over 3.0% but the same issues of intense competition, overcapacity and over-sized stores are the same. And so too is the result: the industry is having to cut prices to generate sales. Meanwhile, cost inflation is running comfortably ahead of sales growth and defending margins is increasingly a function of cost reduction strategies. No wonder we are seeing job losses announced each week, and store closures too.
As I said earlier, this is not a disaster. Nevertheless, we ARE seeing the early days of what will be a lengthy and sometimes painful restructuring of the industry. I have been mapping this out in various Blogs and Papers for some time now. A very different industry will emerge with fewer, much stronger players.
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