Supermarkets are being squeezed as Australians cut back on food

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Weak wages growth is squeezing retail sales of food, according to analysis by Deloitte Access Economics.

Food turnover growth was just 0.7% for the year to June. But low interest rates saved non-food sales, increasing by 3.4% over the 12 months.

“While supermarkets have survived the competitive environment by pushing down supplier prices, costs may not have much further to fall and profits are being squeezed,” says the quarterly retail forecast.

“Supermarket and catered food operators are now relying on population growth to increase their sales, as real retail turnover per capita decreases.”

The numbers are supported by the latest profit results released by Woolworths and Coles. Both report price deflation as they fight to keep customers from shifting to discount chains such as Aldi.

Overall, real retail sales growth, adjusted for inflation, was a moderate 2.5% in 2015-16 compared with 3.3% the year before.

Deloitte Access Economics expects retail sales growth to slow to 2% in 2016-17, before recovering to 3.0% the following year.

Australia’s non-food retail spending has moved on from household goods.

Last year, the strong growth in housing spurred homeware sales while this year is characterised by growth in clothing and department stores.

“Transformation strategies by Myer, David Jones and Kmart/Target, as well as the hype surrounding competitive international fashion entrants has had a huge effect on turnover in these categories,” says Deloitte Access Economics.

As incomes stagnate, retail spending as a proportion of household budgets increases, as this chart shows:

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