Weak confidence around personal finances and a squeeze on disposable income will hold back growth in food retail sales to around 5% in 2023, lagging inflation and December's growth rate, data from market researcher NielsenIQ showed on Tuesday.
In November, the Bank of England forecast Britain was heading into a long recession, with inflation, running at 10.7%, not returning to its 2% target until early 2024. The government's budget watchdog predicted the biggest squeeze on living standards since records began in the 1950s.
"We also expect the recession to start to influence shopper behaviour and reframe overall retail spend," Mike Watkins, NielsenIQ's UK head of retailer and business insight said on Tuesday.
He said 2023 will be tough for UK households as 33% only have enough money for essential spending with just 5% able to spend freely. Consumers in the middle are those that live comfortably but still watch their wallets.
NielsenIQ said UK grocery sales rose 10.9% in the four weeks to 31 December year-on-year, masking a drop in volumes when accounting for inflation.
It said supermarkets benefited from very cold weather in early December and also from continued rail disruption due to labour strikes.
Both held back spend in the hospitality channels helping food retailers to gain "share of calories consumed" from the out-of-home channels.
Echoing data from rival market researcher Kantar published last week, NielsenIQ said discounters Aldi UK and Lidl GB were the best performers with sales growth of 19.3% and 15.7% respectively over the 12 weeks to 31 December.
Other Tradition Major Supermarket Groups
Of Britain's traditional major supermarket groups, No. 2 player Sainsbury's was the best performer with sales up 8.5% over the 12 weeks, followed by market leader Tesco with an 8.0% sales increase and No. 3 Asda with sales up 7.9%.
Morrisons was the laggard with sales falling 1.1%.
Marks & Spencer also performed well with sales up 9.0%.
Shares in Sainsbury's were up 0.9% in early trading, while shares in Tesco and M&S were both up 0.4%. But shares in online grocer Ocado were down 2%.
Tesco, Sainsbury's and M&S are all due to update on Christmas trading this week.
NielsenIQ said that while online sales rose 2.8% in December, its share of the grocery market fell to 10.4%, versus 11.2% a year ago.
Separately on Tuesday, surveys from Barclays and the British Retail Consortium showed overall British consumer spending in December lagged inflation, representing a sizeable fall in real-terms expenditure, despite contributions from Christmas shopping and the men's soccer World Cup.