For millions of Britons, Christmas just isn’t Christmas without a turkey and a mince pie.
Yet with austerity measures leaving consumers with less to spend and a rainy local summer combined with a U.S. drought making food more expensive, the cost of Christmas dinner is forcing people to trade down and buy less this holiday season.
“Christmas is going to be about value,” William Morrison Supermarket Plc (MRW) Chief Executive Officer Dalton Philips said in an interview. To keep the cheer, he’s offering 2.99-pound ($4.82) bottles of kir royale or peach Bellini for festive toasts and maintaining last year’s turkey prices.
Absent the annual rite of feasting of American Thanksgiving, the British Christmas is the biggest epicurean occasion of the year, with households spending a total of 4 billion pounds on food in the final week before Dec. 25. This year, Britons will cut spending by 8.5 percent to an average 161 pounds per household, a YouGov poll of 1,000 adults found.
To capture what spending there is, retailers including Tesco Plc (TSCO) are slashing prices on the most popular items to get cash-conscious customers in the door and away from hard discounters like Aldi and Lidl.
Tesco, the nation’s biggest grocer, yesterday posted its seventh quarterly decline in U.K. same-store sales in eight quarters after losing market share in the 12 weeks through Nov. 27. Aldi increased its share to 3 percent from 2.5 percent, research company Kantar Worldpanel said Dec. 4.
The battle has left Tesco and Morrison shares down 16 percent and 18 percent this year, respectively, two of the four biggest declines among 24 European retailers on the Stoxx 600 Retail index.
“It’s been a roller-coaster year, so we’ve been forecasting a slow start to Christmas trading,” said Mike Watkins head of retailer insight at Nielsen. “With so many money-off coupons available, consumers are already planning where to shop.”
To ensure it’s at Morrison, the fourth-biggest grocer is offering a 13-item Christmas dinner for eight including a 3.8- kilogram (8.4 pound) frozen turkey, potatoes, Brussels sprouts and carrots as well as desserts, for less than 20 pounds. At 2.49 pounds per person, that’s almost 30 percent less than last year’s cheapest deal. Tesco has cut the price of its Everyday Value Christmas pudding to 98 pence and is selling budget mince pies in smaller packages of six for 75 pence.
“Discounting will be a major part of retailers’ strategies,” said Cliona Lynch, senior retail analyst at Verdict Research in London. “People are sticking really tightly to budget so if prices go up they will buy less and be more selective.”
Verdict predicts U.K. Christmas spending will barely increase this year, with food the only growth area due to rising prices, while non-food spending suffers. Shoppers are expected to spend 2.9 percent more for 0.5 percent less food by volume. Non-food spending, meanwhile, will fall 0.3 percent.
“Put it this way, we won’t be having leftovers like we used to,” Pat McInerney, a 44-year old health worker said outside a Tesco in central London. “There are some good deals out there, and my wife and I are always on the look-out, so we’ll stretch it as far as we can.”
The rainiest U.K. summer in 100 years hit vegetable production and the worst U.S. drought since the 1950s has pushed up the price of wheat futures, corn and soybeans, while hot, dry weather also damaged harvests in Russia, Ukraine and Australia.
Morrison is keeping costs down by taking lower-quality parsnips, where production has fallen by 15 percent, and potatoes, down by around 45 percent. Brussels sprouts may cost 15 percent more this year after the crop shrunk by a third. Smaller and misshapen vegetables that wouldn’t previously have been accepted are being bundled in-house into packs sold for a pound, produce specialist Adrian Ford said.
“Potatoes are greening because of all the rain in the U.K., onions are not as good as they were,” Asda Chief Executive Officer Andy Clarke told journalists last month. “There is a good chance there will be food price inflation in second half of the year.”
Asda, the U.K. chain owned by Wal-Mart Stores Inc. (WMT), has also has been cutting prices of basic items like a half-dozen free-range eggs to 1 pound, Chief Financial Officer Richard Mayfield said in an interview. Families have 8 percent less disposable income, according to the Asda income tracker, meaning every pence count to people who have an average of 13 fewer pounds to spend each week.
Those prices make Asda more competitive against discounters like Poundland, which added 100 grocery items priced at 1 pound last month including Kellogg’s cornflakes, Ritz crackers, Hovis white bread and McVities digestive biscuits.
J Sainsbury Plc (SBRY), seen as a more upmarket alternative to Asda and Tesco, says consumers will switch to supermarket labels from brand names to offset inflation. Its Taste the Difference Irish cream liqueur costs 9 pounds on promotion right now compared to a bottle of Diageo Plc (DGE)’s Bailey’s for about 20 pounds. The grocer expects to sell 150,000 bottles this year.
“Yes, times are tough and challenging, but family and special occasions are still there to be enjoyed,” Chief Executive Officer Justin King said at a press conference last month. “We see Christmas spaced over time, people planning the shop, being timed and spreading the cost of Christmas because they want to have a special Christmas.”
Zada Mitchell, a 37-year-old mother of two, says she is turning to Aldi as well as Sainsbury to economize on dinner while still providing her children with gift-filled stockings.
“I spend 30 pounds less on a weekly shop in there, and the quality surprises you,” she said. “Prices have gone up, I’ll be looking for deals, try and be clever with what I buy.”
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