Supermarkets show signs of lower spending

BRITAIN'S SUPERMARKETS

could be seeing the first effects of a slowdown in general consumer spending, according to analysts.

Official figures released yesterday for overall retail sales showed a rise of 2.9 per cent over a year ago, but the Office for National Statistics said the underlying trend continued to point to a further slide in growth.

Supermarkets' share prices slid yesterday, with the investment bank, BT Alex.Brown, cutting its recommendation on the sector from "neutral" to "underweight". Dealers said the move came on the back of a steady erosion of real like-for-like sales throughout the year.

A new television campaign, due next week from Sainsbury, added to concerns over increased competition.

The market leader, Tesco, fell 8p to 163p; Sainsbury fell almost 37p to 525.5p; Safeway slipped 12.5p to 305.5p and Asda dropped 6.25p to 174.5p.

Tesco, which reports half-year results on 22 September, is expected to confirm the trend. Analysts are looking for underlying sales growth of 2 to 3 per cent, compared with its last report in June of a 4.8 per cent gain.

"The underling trend is slightly downward, even if profitability remains strong," said one sector analyst.

However, William Morrison, the Yorkshire supermarkets group, reported half-year profits of pounds 68.3m against pounds 61.7m in the period last year.

Inflation-adjusted same-store sales in supermarkets rose just 0.1 per cent in August on a year ago, a steep fall from growth of 2.4 per cent in January.

As supermarkets move into non-food sectors such as clothing, entertainment and electronic equipment, they have reaped the benefits of higher margins. But the move into non-food leaves supermarkets more vulnerable to any slowdown in consumer spending and there are worries that customers might start to move away from expensive ready meals, where profit margins are high.