By James Davey and Paul Sandle
LONDON (Reuters) - Britons splashed out on premium and party food at Tesco (LON:TSCO) and Marks & Spencer over Christmas, prioritising treats at home over eating out, and favouring the biggest retailers for their festive spending in still tough economic conditions.
Wider industry data had showed lacklustre sales over Christmas, fuelling concerns that the economy had tipped into a mild recession, but results from the country's biggest names on Thursday defied the gloom.
At Tesco, Britain's No.1 supermarket chain, snacks and party food sales jumped 13.5% and sales of its top-end "Finest" range rose 17%, on overall underlying UK sales growth of 6.8%, while upmarket store M&S (LON:MKS) said party food sales helped its underlying food sales rise 9.9%.
M&S also posted growth in clothing and home sales of 4.8%, with womenswear the big winner. Knitware, denim and its Autograph brand flew off the shelves, overcoming a trend for shoppers to shy away from more discretionary items.
While Tesco's chief executive said he was "cautiously optimistic" about the UK consumer, he warned that a cost of living crisis, where for the last two years high inflation has hit household incomes, was not over.
"It's too early to call that," Ken Murphy told reporters.
The boss of M&S, Stuart Machin, was also cautious, attributing growth at his group to its turnaround strategy based on improving its fashion offering and attracting consumers for their larger food shops rather than any improvement in the wider economy.
"Our customers... are slightly cautious still because they're wondering what the next 12 months will bring," he said, pointing out that one uncertainty was an election later this year.
SPENDING POWER
While shoppers in the UK have benefited from inflation falling during 2023, interest rates have over the course of the year risen to a 15 year-high of 5.25%, keeping up the pressure on their spending power.
No. 2 supermarket group Sainsbury's said on Wednesday that, like Tesco, it was seeing consumers spend more on its more expensive food ranges, as they entertain at home rather than going to restaurants.
Sainsbury's is more exposed than Tesco to sales of furniture, electrical items and homewares, and that dented its Christmas as shoppers chose not to spend on general merchandise.
Sales at its Argos chain fell 0.6% in the Christmas quarter.
A loser at Christmas was JD Sports, which sells sportswear and fashion. It reported softer demand in its latest period, citing tepid consumer spending.
Machin and Murphy's caution also reflects continued cost pressures in 2024, including a rise in business rates and higher staff wages after a 10% hike in the government mandated national minimum wage. Tesco and M&S both highlighted those pressures, echoing comments from Sainsbury's and clothing retailer Next last week, which will have to deal with wage bill increases of 200 million pounds ($255.22 million) and 60 million pounds respectively this year. On the supply side, there is also uncertainty from disruption to shipments through the Suez Canal due to attacks by Iran-backed Yemeni Houthi militants in the Red Sea.
M&S's Machin warned there could be slight delays to clothing and homeware delivers scheduled for February and March.
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