The sun is out and Britons are shopping again. UK retail sales rose 1.2% in April, the fastest pace since last November, and far higher than the 0.4% the market expected.
At first glance I thought that would be good news for ailing supermarket giants Tesco (LSE: TSCO), J Sainsbury (LSE: SBRY) and WM Morrison Supermarkets (LSE: MRW).
But a closer look at the figures shows that the real growth was in clothing, footwear and textiles, which jumped 5.2% compared to March, the biggest rise for four years.
Every retail sector showed growth with one notable exception: food.
Food Inglorious Food
Food sales actually fell 0.1% in April, as supermarkets continue to suffer from weak demand.
The figures follows Asda reporting its worst quarterly sales in more than five years, with its chief executive complaining that customers were “not yet cash-confident”.
Latest figures from Kantar Worldpanel show grocery price inflation falling 2.4% in the year to April, one of the main reasons why the UK has slipped into deflation.
Lower prices have taken out £532m from supermarket tills over the year.
That does enough damage to margins at Tesco, Sainsbury’s and Morrisons, even without the threat posed by Aldi and Lidl, whose market share has more than doubled from 5% to 11% in the year.
The Inconvenient Truth
I swept the supermarkets from my portfolio just over one year ago, happily, when Tesco still fetched 326p.
Despite its recent share price rally, it still trades well below that price at 219p.
I admire the way new boss Dave Lewis has set about tidying up Tesco’s shelves and a return to real wage growth will give him a helping hand. But it can surely never enjoy its former dominance, given the challenge it faces online retailers, convenience stores and those German discounters.
War Is Stupid
It is hard to escape the sense of long-term decline when you see that Tesco’s share price is 44% lower than five years ago, while Sainsbury’s is down 18% and Morrisons is down 31%.
Over the same period the FTSE 100 has risen 37%.
There are signs the position is stabilising, notably at Sainsbury’s, where sales fell just 0.1% over the past year, making it the best performer of the three.
The costly price war may now have moved on to a new phase, with even Lidl now promoting itself on quality and freshness, rather than just price.
Deflation could work in favour of the big supermarkets, by making their customers think about other things rather than price. But it isn’t enough to make help me regain my appetite for this sector.