Premium brands boost Sainsbury's as Britain gets the taste for fine foods

J Sainsbury became the latest group to hail shoppers' new-found appetite for top- quality food as a key factor behind its 5 per cent leap in like-for-like sales over the past three months.

Mums on a budget should look away now: Britain is in the grip of a speciality food boom that is feeding straight through to the bottom lines of the country's top supermarket groups after one of the best Christmases for the grocery industry in years.

Already this week, WM Morrison, Waitrose and, to a lesser extent, Marks & Spencer have benefited from a "flight-to-quality" by shoppers the length and breadth of the land.

Sales of Taste the Difference, Sainsbury's premium own label range, grew by 20 per cent during the period on the back of strong sales of just about everything from vintage champagne to jumbo king prawns. Morrisons' equivalent brand, The Best, grew by 40 per cent over Christmas, while Asda's Extra Special grew even faster still, at 61 per cent.

Figures from the IGD, the grocery think-tank, predict that the value of retailers' premium private labels will almost double during the next four years, to a shade under £9bn. A separate report from Datamonitor, the research group, today predicts that retail sales of speciality foods and drinks will hit £4.2bn by 2011, up from £3.6bn last year.

All of the top grocers have relaunched their premium lines in the past few months. And that includes Asda, a chain hardly renowned as a magnet for the high-spending shopper. Andy Bond, its chief executive, has said: "We see a shift in our range towards more premium lines." He wants to triple the amount of revenues that come from its "best" lines to 10 per cent over the next three years.

Patrick Mitchell-Fox, IGD's senior business analyst, said: "Retailers that are not involved in the premium market are now the exception rather than the norm."

When Tesco issues its trading update on Tuesday, it will highlight how customers cannot get enough of its Finest ranges, which it recently extended to non-food products from cashmere jumpers to sauce-pans. Sales of its Finest lines are growing at four times the rate of the rest of its business.

In fact, much as they would hate to admit it, all of Tesco's rivals probably owe it a big "thank you" for inventing the premium ready meals genre back in 1998. Tesco was the first of the big grocers to realise that it could appeal to more customers if it segmented the types of food it sold. The Finest brand is now worth £1bn a year - that's 3 per cent of its annual UK sales.

Sainsbury's is doing better still, relatively speaking. Taste the Difference is knocking at the door of £1bn in sales, which is about 17 per cent of its top line. As Justin King, its chief executive, never tires of reminding: "Sainsbury's was founded on the principles of quality food. It's what our customers want."

Sainsbury's is attempting to take a further bite out of the premium market with a new range of "Super Natural" ready meals that have done away with all of the food nasties still found in even most top-quality lines. The new meals are based around "superfoods" such as pulses, beans and pomegranates and contain no additives or trans-fats, that culinary bogeyman of the Noughties.

Mr King believes that Sainsbury's recovery hinges on its focus on top-quality food. The group underscored its return to form yesterday by managing to deliver decent sales growth, despite being up against the toughest comparatives of its turnaround. Like-for-like sales growth, excluding petrol, of 5 per cent for the 12 weeks to 30 December was a shade above City forecasts and the company's eighth consecutive quarter of underlying growth.

It isn't just higher sales of upmarket ready meals that are fuelling the growth in the premium food market. The Government's health drive is finally bearing fruit, literally when it comes to sales of super fruits such as blueberries. Despite the drubbing David Miliband, the Environment Secretary, gave the organic industry this week, sales of organic food are booming.

Matthew Adams, Datamonitor's consumer markets analyst, said: "One of the key ways in which consumers are trying to eat more healthily is by purchasing organic variants of products, rather than standard versions."

IGD predicts the strongest growth in the premium sector, which makes up about 10 per cent of the food and grocery market, will come from organic and Fairtrade ranges. Again, all of the big grocers have launched a major drive into organic food in recent weeks. Sainsbury's and Tesco have even piloted organic vegetable box schemes, which for a price get delivered to customers' homes.

The push by the Big Four into the premium food market is causing havoc for the one company that sets its stall on luxury ready meals: Marks & Spencer. All the opulent advertising campaigns in the world can't make up for the fact that M&S's core territory is under threat, as its sales figures this week showed. In its third quarter, which ran to 30 December, its like-for-like sales rose 3.6 per cent, which lagged the market. Data from TNS showed that the total spent at grocers grew by 5 per cent over that period.

M&S still dominates the premium market with a 25 per cent share, but analysts believes this position is under threat. Katherine Wynne, at Merrill Lynch, questioned "the scale of opportunity in food" in a note this week.

The other trend that bodes ill for M&S is the cult of the celebrity chef, which in turn is inspiring more of us to don our white hats and aprons. Steve Esom, the head of Waitrose, said this week that his sales figures (up 5.6 per cent during the five weeks to 6 January) showed that "more people were cooking" from scratch.

Mr King likes to think that Sainsbury's "Try Something New" campaign, which features Jamie Oliver doing natty things to the likes of butternut squash and red peppers, has turned us all into a nation of foodies.

Either way, when families seek a way to trim their household spending following yesterday's shock interest-rate rise, chances are that it won't be by cutting back on luxury grub.