After Christmas relief UK retailers face 2023 reality check

Updates next week from Britain’s biggest retailers including Tesco, Sainsbury’s and Marks & Spencer are expected to confirm that while Christmas was not the disaster that some had feared, consumer demand is set to weaken in 2023, denting profit.

Despite inflation running at 10.7 per cent  and consumer confidence close to record lows, retailers that have reported good numbers so far on festive sales, including clothing retailer Next fast food chain Greggs and discounters B&M and Aldi UK.

Though train and postal workers strikes caused some disruption to trade, Christmas 2022 was the first not impacted by COVID-19 restrictions since 2019 and despite the ongoing cost of living challenges Britons appear to have prioritised festive spending.

But the consumer outlook for 2023 is poor, with the government’s budget watchdog having predicted the biggest squeeze on living standards since records began in the 1950s.

The strain on Britons’ household budgets is likely to begin to tell this month as Christmas credit card bills arrive.

UK consumers will this year face persistent inflation in essential goods, particularly food and energy.

They also face scaled back government support on household energy bills and some higher taxes, while a lot will have to deal with higher mortgage costs as their fixed interest rate deals expire.

Monthly till data from market researcher Kantar has already showed Tesco and Sainsbury’s grocery sales rose 6.0 per cent and 6.2 per cent respectively in the Christmas quarter, albeit with volumes down, so the likely focus of their own updates will be the profit outlook.

“We sense that the UK supermarkets have gained overall share of retail expenditure in December as folks focused upon food and beverages in particular,” said Shore Capital analyst Clive Black.

Most analysts expect Tesco to reaffirm guidance, that was edged down in October, for 2022-23 retail adjusted operating profit of 2.4-2.5 billion pounds, down from the 2.65 billion made in 2021-22.

Sainsbury’s current guidance is for 2022-23 underlying pretax profit of between 630 million and 690 million pounds, down from the 730 million pounds made in 2021-22.

Analysts see Sainsbury’s as more challenged than other supermarket groups because its ownership of the Argos general merchandise business leaves it more exposed to pressure on consumers’ disposable income.