European Retail Briefing - December 2014
Analyst Comment
 
Non-food will drive Europe’s retail growth this Christmas
In food prices, inflation has turned to deflation in the EU. 

Lower commodity prices have been a major influence. But price competition in markets like France, the UK, Ireland, Italy and Poland are also contributing: in some markets hard discounters have pushed full-range rivals into cutting prices. 

FIGURE 1: Consumer prices for food and non-alcoholic beverages, EU-28 countries in total, annual % change, January 2013 – October 2014
  
Source: Eurostat © European Union, 2013-14

This means the EU grocers sector has recently been underpacing the overall retail sector, in growth terms. The continent’s grocers sector turned in sporadically negative growth as deflation deepened. All retail performed better, boosted by non-food. 

FIGURE 2: Retail sales, EU-28 countries in total, annual % change, January 2013 – September 2014
  
Source: Eurostat

In theory, lower spending on food should mean shoppers will have more to spend on non-foods, ie gifts. But overall European consumer confidence levels have fallen again, after a steady upward trend up to the middle of 2014.

We still think shoppers in some markets will use the opportunity of lower grocery costs to spend a little more on non-grocery purchases in December 2014. But, across the EU in general, there is no guarantee that shoppers are ready to offset lower grocery costs with extra spending elsewhere.

FIGURE 3: Consumer confidence levels, EU-28 countries in total, January – November 2014
  
Source: Eurostat © European Union, 2014

●	Across Europe, the grocers sector accounts for around 39% of all retail sales. 
●	So deflation, or very low positive inflation, for December 2014 will depress overall retail sales.
●	In some markets food deflation will allow shoppers to spend a little bit more on non-food categories – ie gifts.
●	So non-food sectors will drive retail sales growth this Christmas.