Sainsbury's and a fragile economy

Supermarket bags in a car boot

In recessions, supermarket groups normally perform better than other businesses, because even when we are strapped for cash, we all have to eat.

This last recession and then the long years of economic stagnation were a bit different from previous slumps, in that cash-strapped households became much more price conscious and altered their shopping habits in a fairly fundamental way.

So they switched their purchases to the so-called hard discounters, Aldi and Lidl, they (we) were more parsimonious in the weekly big shop, they used convenience stores for top-ups, and they generally behaved in a way that limited the growth in sales and profits of the big supermarket chains.

Even so, compared with most other parts of the economy, the supermarkets did OK. They faced challenging conditions, but were a million miles from crisis - although the big daddy of supermarket groups, Tesco, was certainly flustered as Terry Leahy's successor as boss, Phil Clarke, looked under the bonnet and found something more fundamental than a tune-up was needed.

But here is the interesting question. Now that the economy is apparently growing very fast again (at an annual rate of more than 3% per year according to the Bank of England's latest assessment and forecast) what does it mean that the grocery market is not doing well at all?

You will recall the recent mess disclosed at Wm Morrison.

And today, J Sainsbury saw underlying sales decline by a relatively substantial 3.1% (excluding fuel) for the first three-month period in 36 quarters (that's nine years, in most people's money).

When the longstanding chief executive, Justin King - who has overseen Sainsbury's rehabilitation - announced his departure recently, I joked he was getting out at the apposite moment. Perhaps that wasn't a joke.

He says that Sainsbury is simply performing in line with the market as a whole, and has maintained its market share (at 17%).

King: "The market is now growing at its slowest rate since 2005, with falling food inflation in particular benefiting consumers."

It is worth unpicking that statement by King.

Sainsburys, Cambridge

The first interesting thing he says is that the worst recent period for supermarkets was in 2005, long before the 2008 crash. Which confirms that there is very little direct correlation between how supermarkets perform as a group and the overall health of the economy.

The second however is his assertion that food inflation is low and falling. Which seems a bit odd, since internationally the basic price of foods has been pushed up by drought and disease, while domestically produced food has been inflated by the great British deluge of recent months.

Presumably what he is talking about is what we might call the Aldi factor - that intense competition between the supermarkets is forcing them to cut prices, and accept lower profit margins.

Which is great for shoppers (to state the bleedin' obvious) - it would be belatedly welcome news for living standards, if we were buying the same or a bit more from the supermarkets, for less of an outlay.

Start Quote

We are not taking advantage of lower prices at the supermarkets to buy more from them, or buy more extravagantly”

End Quote

But this squeeze on margins and profits ain't so wonderful for owners of supermarkets.

But what really interests me is what all this says about the strength and sustainability of Britain's economic recovery.

As you know (you do, you do), that recovery has been driven by more than two years of revival in consumption, as households have reduced how much they save.

But what is very striking is that we are not taking advantage of lower prices at the supermarkets to buy more from them, or buy more extravagantly.

So there appears to be very little confidence among us that our living standards are set to rise in any kind of substantial or durable way.

What should we therefore conclude from the current supermarket malaise?

Well, just to ram home the point, for all their economic importance, and for all the money they vacuum from our wallets, there is no simple direct correlation between the performance of supermarkets and the performance of the economy as a whole.

But nor are they completely quarantined from economic conditions.

So it is probably reasonable to conclude from the trouble at Morrison, the end of the long boom at Sainsbury and the general pressure on the sector, that Britain's consumer-led recovery remains fragile.

Robert Peston Article written by Robert Peston Robert Peston Economics editor

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  • rate this

    Comment number 333.

    It is right people are shopping, as I do myself at cheaper supermarkets because they do offer good quality products at much lower prices, so we have switched from the likes of Tesco to Aldi and are better off for it.

    With costs of living and owning a house taking most of your income, something has to give.

  • rate this

    Comment number 332.

    We're scrimping at the supermarket because we've spent all our money on the mortgage. High house prices are such a good thing!

    Thanks to Osborne for "help to be a mortgage slave".
    Thanks to new build planning restrictions.
    Thanks to the landed classes evading IHT and not giving up 40% of their estate on death.

  • rate this

    Comment number 331.

    As always when reading these blogs people are just not honest about facts. It seems a British trait we just just have to say how bad things are! I'm a house owner on a small pension and things have definitely picked up, there is some money over each month. We shop at Lidl manage our budget, don't pay stupid money on expensive phone contracts, cars etc. Basic economics manage your budget people!!

  • rate this

    Comment number 330.

    Uncertainty invariably breeds caution. The country is deep in debt; so too are much of its people. The foolish just keep on spending their borrowed money like there was no tomorrow, but indications are there are enough people out there tightening their belts and hanging on to what they have got, waiting for better times. Supermarket spending is but one indicator of this trend.

  • rate this

    Comment number 329.

    Supermarkets thrived with the building of convenient large stores with parking. Our lives changed from Mum doing a daily shop to a desperate family dash round the aisles once a week. The town center declined as a result. Now we have new market entrants such as Aldi and Lidl as a result revenues and margins have reduced. This is capitalism working.

  • rate this

    Comment number 328.

    Unless we can split Sainsbury's food and non-food sales and see where the profit and loss is, these figures don't mean a great deal. If we're not buying more extravagantly, why are Waitrose and restaurants doing so well? PCs etc no longer get obsolete every 2 years. You didn't spend the last 35 months raving about how great Sainsbury's were doing and how it must mean the economy is great....

  • rate this

    Comment number 327.

    I wish people would stop saying Aldi/Lidl are 'budget' supermarkets. They are doing just what Tesco did when they started. "Pile it high and sell it cheap". Is the product poorer 'quality'? Less of a 'shopping experience' certainly, but I think the food is as good as any of the 'big 4'.

    This is a good thing for consumers! These retailers are being forced to eat their own marketing words (sic).

  • rate this

    Comment number 326.

    5. You Aint Seen Me Right
    supermarkets squeeze farmers prices and say that farmers should be paid more.

    We can't have it both ways,can we ?

    Sad isn't it. But we see this everywhere. Tax NEEDED from smokers but they're told to stop smoking. Tax NEEDED from fuel but the pollution is out of control. buy more food - but don't get fat. spend for recovery - but save for pension. etc. it's all b*ll

  • rate this

    Comment number 325.

    It is the law of inevatability, as the gravy train with messrs Tecso, Morrisons & Sainsburys comes to a grinding halt - no doubt the shareholders will find out shortly.
    As we all face the prospect of retiring as we enter the nursing home, Tesco's - Every Little Hepls is most suitable !

  • rate this

    Comment number 324.

    Is it not possible that the supermarkets are going to suffer slower growth as the economy improves and more people start eating out again. We have seen continued growth in the service industry. Why do you not pick up on this? Seems very simple.

    And whilst your at it, stop talking about a recovery. Most sectors are now at 2007 levels, which was the height of a boom.

  • rate this

    Comment number 323.


    You have very little money,
    Why would you buy 2 cans of beans from Sainsburys,
    when you could buy 4 cans from Lidl.

    It certainly is not rocket science.

  • rate this

    Comment number 322.

    Buy at local small retailers , these supermarkets dont care about the customers !

  • rate this

    Comment number 321.


    The so called bonus paid has been a static 3.6% for 8 years. On a salary if about £14000 per year it is important. To pay an increase of 2% on 14000 and then lower the bonus by 2% gives an effective annual increase of zero. Taking inflation into consideration then we are worse off.

    Here endethnthe basic economics lesson

  • rate this

    Comment number 320.


    Unless your bonus was greater than or equal to your entire annual salary you have had a pay rise; a very substantial one at that, most people haven't had a pay rise for years.

  • rate this

    Comment number 319.

    I work for Tesco who gave us a generous 2% pay increase this year - yipee. They then announced later that the annual bonus to the poorly paid lower ranks would be 1.3% this year. This is oddly DOWN 2% from the 3.6% that has been paid since I started 8 years ago.

    Net overall pay increase ZERO


    And they want me to spend more with them, HOW?????

  • rate this

    Comment number 318.

    Now that many supermarkets sell a great number of things other than food, I would have thought it would be obvious that their sales would decline more in times of recession than when all they sold was food.

  • rate this

    Comment number 317.

    How many people like me buy cheap staples at Aldi and then go to Waitrose for luxuries, this is not a model to inspire Sainsbury

  • rate this

    Comment number 316.

    Given that we are ruled by the criminal political class I cannot see how any "recovery" is on the cards.
    Do turkeys get better food at xmas ?

  • rate this

    Comment number 315.

    the economy is in a mess larger supermarkets are too expensive the budgets due today and the selservatives say we are all in it together. roll on 2015

  • rate this

    Comment number 314.

    When we lived in the UK we always used Lidl, Aldi and Netto, and they served us well. Regular supermarkets were too expensive; Our weekly shop would be double if we had used them.

    There is no recovery, from what we've hour contracts, wage freezes, increased use of food banks, massive debt, negative equity, under employed people...the UK has become a lot poorer. Adapt or leave, folks.


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