This sceptred aisle

IT HAS been a week of reckoning for Britain’s retailers. Most reported on the final quarter of 2017, including the crucial Christmas sales period. How did they do? Generally, if a shop was selling mince pies and steak, it will have had a good season; those hawking cosy cardigans and kettles, much less so.

Whereas food sales leapt by about 4% over the three months compared with the year before, non-food sales fell by 1.4%, according to figures from the British Retail Consortium, an industry group. These results confirmed a trend in which consumers, feeling the pinch of inflation and stagnant wages, are spending on essentials, such as food, while cutting back elsewhere. Consequently, supermarkets tucked in to the brandy butter, while the Christmas lights went out in several retailers.

Strikingly, the best-performing supermarkets were those that have been hit by the rise of the German discounters, Aldi and Lidl. In 2014 Morrisons lost £792m (then $1.3bn), and plenty of market share, while Tesco made the biggest loss in British retailing history. Yet Christmas sales show that both are continuing their recoveries.

Morrisons did particularly well: the fourth-largest supermarket chain increased its like-for-like sales by 2.8% in the ten weeks to January 7th compared with a year ago, beating expectations. Now that it has introduced a new automated ordering system, to get stuff on the shelves on time, the quality of its fresh food, which it also delivers through Ocado and Amazon, is paying dividends. Bryan Roberts, an analyst at TCC Global, a consultancy, argues that Morrisons has also invested in good service, showing that “you can still thrive without being the cheapest”.

Tesco, the biggest supermarket, also performed creditably, reporting that its like-for-like sales rose by 1.9% during the Christmas period. So did Sainsbury’s, which some had expected to be the weak link. The latter’s sales grew by 1.1%, with grocery sales rising by 2.3%.

It is likely that some of these impressive figures were bought at the cost of profitability. British supermarkets have been forced into price-cutting and other promotions to fend off Aldi and Lidl. This was wise, as it turned out, because the German upstarts recorded spectacular Christmases. Aldi saw a 15% overall rise in December sales, year-on-year, taking its annual revenues in Britain and Ireland over £10bn for the first time. Lidl recorded a rise in sales of 16%.

Tellingly, their poshest items, such as Aldi’s Aberdeen Angus steak, were bestsellers, demonstrating how they are increasingly capturing middle-class families, traditionally the preserve of Tesco, Sainsbury’s and the like. Both Lidl and Aldi continued to open new stores in December, particularly in middle-class bits of southern England. Tesco and Sainsbury’s, for all their Christmas cheer, certainly can’t relax.

Neither can the non-food retailers. Although John Lewis did well, with an increase of 3.1% in like-for-like sales, others were not so lucky. Debenhams issued a profit warning after sales in its stores fell by 2.6% in the 17 weeks to December 30th. The icon of the high street is closing shops. At Mothercare, in-store and online sales fell by 7% over Christmas, provoking a run on its shares. And Sainsbury’s might have done well in food, but its sales of general merchandise fell by 1.4%. Marks & Spencer did even worse; clothing sales were down by 2.8%. Its normally tasty food business performed poorly, compounding the gloom over the firm’s future.

For Britain’s retailers the message is clear: get the food right, and watch out for the Germans in the rear-view mirror.