The cost of Christmas: How crucial will the festive season be for supermarkets?

Although it seems summer has only just been and gone, for the retail sector, the festive season has officially begun.

While September might be a little early for some shoppers to be considering the size of the turkey they’ll eat or which wrapping paper to purchase, for the UK’s supermarkets, this Christmas will be crucial. Looking to boost or even just to maintain sales, many retailers will be hoping to recover from this year’s losses brought on by the inflationary pressures of the cost-of-living crisis.

For consumers alike, while it might be too early to get in the ‘Christmas spirit’ for some, many retail experts suggest that starting out early to find the best offers and deals could save shoppers significantly – particularly when prices are likely to continue to rise.

As the golden quarter approaches, will the run up to Christmas be the saving grace for grocery retailers or will changing consumer habits put an end to frivolous festive spending?

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How crucial is the Christmas period?

For many of the UK’s leading grocers, sales have been hard hit as consumers are purchasing less to counteract price hikes.

As a result, retailers such as Waitrose claim they have been “forgoing profit” to eliminate the need to push prices up further and maintain its customer base.

John Lewis chair, Dame Sharon White said: “We will need a substantial strengthening of performance, beyond what we usually achieve in the second half, to generate sufficient profit to share a partnership bonus with partners.”

According to GlobalData analyst, Amira Freyer-Elgendy, Waitrose has “failed to keep up with rivals’ timely responses to the rising pressures on consumer budgets.”

She warns its “operating profit will also continue to be under pressure as costs and inflation pressures continue to climb” and that consumers “will buy fewer items when faced with price increases – a shift Waitrose is already seeing as average transaction values decline.”

Although Waitrose has been in the spotlight this week with analysts saying it will need to generate strong sales over the Christmas period, QuMind CEO Marc Ursell says this will be a crucial time for retailers across the board, “with many relying on the season’s higher volume of sales.”

Ursell says: “The cost-of-living crisis therefore presents a significant concern. Consumers are already changing their buying patterns under the mounting financial pressure. Questions like ‘Do I need this?’, ‘Is this the best price?’, and ‘What alternatives are there?’ now define many purchasing decisions.”

Research by the insights platform found that 26% of the Brits surveyed intend on starting their Christmas shopping this month, giving them more time to find bargains.

According to QuMind, this indicates that retailers might not see the typical sales growth that they would expect to later on in the year.

Boosting sales during the Golden Quarter

Grocers including leading retailers Tesco, Morrisons and Sainsbury’s are already launching their Christmas lines, including new and existing own-brand items.

Waitrose said it was “really excited” to have launched its first festive lines, “giving customers the chance to spread the cost of Christmas or simply get into the spirit early.”

Freyer-Elgendy says strategies including relaunches, value campaigns, diversifying a company’s business portfolio and expanding partnerships can help to “reverse the downward trend”.

Tesco’s recent partnership with toy retailer The Entertainer, which will see concessions rolling out in 35 of the Big 4 grocer’s stores across the country next month, could also help to boost its Christmas sales. During the golden quarter in Q4 2021, the toy industry was worth 46% of annual toy sales, with half of those taking place during the month of December alone.

However, initiatives like this are yet to be tried and tested and they are by no means a certainty of success. QuMind’s recent research found that 46% of Brits expect to spend less on toys this year as luxury spending – which includes gift-giving – is likely to take the back seat to the rising cost of essential items.

Ursell says that “with two-fifths expecting to spend less on groceries than last Christmas, initiatives that encourage return custom will be critical.”

The insights platform’s research found that 46% of Brits want retailers to offer more loyalty rewards, voucher schemes and seasonal offers to make products more affordable, particularly during the Christmas period.

Ulitmately, Ursell says these strategies are “important for attracting and retaining customers.”

Can supermarkets justify sales strategies during the cost-of-living crisis?

As much as retailers are looking to get through the current cost-of-living crisis with sales loss at a minimum, it poses the question – is it right for retailers to increase marketing strategies and sales tactics when many consumers are struggling to afford basic items?

For supermarkets themselves, Ursell says that they “are in a stronger position than most. One-third of Brits plan to buy supermarket brands over branded goods, and 24% will opt for supermarkets over smaller local stores.”

While these statistics don’t look likely to indicate a strong boost in sales, the switch from branded to own-brand goods, which is already becoming increasingly popular, could be one way that supermarkets are able to maintain sales without having to push irresponsible levels of Christmas spending on their customers.

Focusing on Waitrose specifically, Freyer-Elgendy says the emerging trend of ‘high-low’ consumers, will see some “purchasing treats and premium quality or specialty goods at Waitrose but switching to the discounters or Tesco for everyday staples and household goods.”

On whether retailers’ actions can be justified when looking to boost sales at such a financially- sensitive time, British Retail Consortium director of insight, Kris Hamer says that: “despite high inflation, retailers are playing their part to support customers, expanding value ranges, fixing the price of essentials, and absorbing price rises where they can.”

He adds that “fierce competition between supermarkets in the run-up to Christmas should help keep prices as low as possible during what is a costly time of year for most households.”

While the cost of Christmas and the cost of living will be difficult for consumers to balance this year, it’s clear that retailers can expect to face the pressure during the final quarter. Both in terms of keeping the tone right for shoppers, while also looking to make up for the losses of what has already proven to be a challenging financial year.



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