March 29, 2011 / 2:34 PM / 8 years ago

Britons cut back on groceries as incomes squeezed

LONDON (Reuters) - Britons have been cutting back on groceries, data showed on Tuesday, adding to signs of a rapid deterioration in consumer confidence which analysts fear could derail an economic recovery.

A shopper pushes a trolley at an ASDA supermarket in Oldham, January 5, 2011. REUTERS/Phil Noble

Market researchers Kantar Worldpanel and Nielsen reported small rises in grocery sales over recent weeks.

The increases were less than their measures of food price inflation, suggesting shoppers are buying fewer goods.

Nielsen also said promotions accounted for a record 40 percent of sales, underscoring cash-strapped shoppers are hunting for the best deals.

“Shoppers are really feeling the pinch,” said Mike Watkins, Nielsen’s senior manager of retail services.

A string of retailers have reported a slowdown in demand since the start of the year as prices climb and government austerity measures bite.

Weaker-than-expected sales from supermarket group J Sainsbury last week sent shockwaves through the sector as grocers are viewed as among the most resilient retailers because of their focus on essential items.

While Britain’s manufacturing industry is showing a healthy recovery, economists fear a deterioration in consumer spending, which accounts for about two-thirds of gross domestic product, could put the brakes on growth.

All is not lost, according to Shore Capital analyst Clive Black, who pointed to the prospect of a triple retail boost in April from Mother’s Day, Easter and a royal wedding.

But he warned a weaker pound could drive inflation higher, leading to interest rate rises, and that unemployment could continue to climb.

Having cut sales forecasts for Sainsbury and Wm Morrison, Black said reductions could be in store for wholesaler Booker, which has a trading update on Thursday, and Tesco, with results on April 19.

Kantar and Nielsen said hard discounters Aldi and Lidl, which enjoyed soaring sales at the start of the recession in 2008-9, were once again seeing sales growth of over 10 percent.

However, they were seeing existing shoppers spend more with them rather than a big influx from rivals, Kantar said.

Analysts have also said they could be benefiting from disruption at discount rival Netto, which is in the process of being bought by Wal-Mart’s Asda chain.

Kantar said grocery sales rose 2.6 percent year on year in the 12 weeks to March 20, down from 3.9 percent in the 12 weeks ending February 20.

Grocery price inflation was 4 percent, ahead of market growth for the first time since July 2009, it added.

Nielsen said grocery sales rose 2 percent year on year in the four weeks to March 19, almost half the rate of the previous four weeks, with inflation up at 4.5 percent.

At 2:30 p.m., J Sainsbury shares were down 1 percent, with Tesco down 0.7 percent and Wm Morrison down 0.5 percent, against a 0.3 percent fall on the STOXX Europe 600 retail index.

Editing by Dan Lalor and David Hulmes

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