Strong trading updates from Marks & Spencer and Tesco on Thursday confirmed that retailers were the big winners this Christmas as the rapid spread of Omicron prompted people to eat and drink more at home instead of heading out to restaurants and pubs.
Money saved on trips out was splashed on sparkling wine, luxury food, pajamas and other clothing thanks to a loosening of restrictions on high street shopping.
However, Tesco and M&S joined the likes of Sainsbury’s and Next in warning of rising prices for shoppers in the months ahead, as costs of shipping and raw ingredients were increasing and supply chain difficulties expected to continue for some months.
“We will continue to see lumps and bumps through the next quarter,” said Steve Rowe, the chief executive of M&S, who said some price rises were inevitable later in the year. “The pressures have come down slightly as we have passed the peak but there are still some issues with shortages of labor and continuing [staff] absence.”
Tesco said cost inflation was running at about 5%, but it was working closely with suppliers to make efficiencies so that not all of this would be passed on to shoppers.
Increases in pay for workers in stores, warehouses and delivery networks are also expected to rise as staffing shortages prompted by Brexit are made worse by absences related to the pandemic.
Tesco and M&S said they would be negotiating with unions and expected to increase pay as rivals including Sainsbury’s, Aldi and Lidl have already pledged to pay more than £10 an hour from this spring.
M&S, which is recovering from years in the doldrums, booked its highest ever sales of food and a surge in clothing. Food sales jumped 10% in the three months to 1 January, compared with a year earlier, making it the fastest growing food retailer in the UK.
Strong sales of bras, pajamas, jeans and activewear spurred on clothing sales, while food sales were boosted by shoppers buying a wider array of everyday items, including tea, easy peeler citrus fruit, milk and cheese. Demand for special items including rosé prosecco also lifted trade.
The strong rise in sales fat M&S came despite fears of product shortages caused by supply chain difficulties including driver shortages and hold-ups at ports.
Clothing sales jumped almost 40% in the UK and more than 17% overseas as shoppers were able to return to stores after last year’s widespread lockdowns.
Rowe said: “Trading over the Christmas period has been strong, demonstrating the continued improvements we’ve made to product and value.
“Food has maintained its momentum, outperforming the market over both 12 and 24 months. The market continues to be impacted by the headwinds and tailwinds that we reported in the first half, but I remain encouraged that our transformation plan is now driving improved performance.
The other side of that equation was reflected at online specialist Asos where UK sales growth slowed to 13% from more than 30% reported in the summer. Profits were hit by higher levels of discounting to clear stock, greater use of air freight to transport goods and more normal levels of returns than early in the pandemic when shoppers favored loose fitting clothing.
The boost to food retailers from the Omicron wave was also confirmed by Tesco.
The UK’s biggest supermarket said sales rose 0.6% in the three months to 8 January – compared with the same period a year before. Tesco increased sales on 2020 when supermarket sales were boosted by the closure of hospitality businesses for many weeks across the UK.
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Ken Murphy, the chief executive of Tesco, said the supermarket continued to invest to protect availability of goods.
“This put us in a strong position to meet customers’ needs as, once again, Covid-19 led to a greater focus on celebrating at home. As a result, we outperformed the market, growing market share and strengthening our value position.”
Both companies nudged up their forecasts for the full year but investors were underwhelmed. Disappointment about a lack of big profit upgrades and fears over inflation led Tesco shares to fall 2% in early trading on Thursday, while M&S was down 4%.