If your weekly shop feels like it is getting pricier every week, that is because it is. The cost of groceries is continuing to rise — by 17.5 per cent in March compared with the previous year, says research group Kantar. With the stretched British consumer becoming adroit at hunting down deals, supermarket margins will remain under pressure and big-brand producers will take a hit.
Food price inflation is not a recent phenomenon. High commodity prices, supply chain disruptions and poor harvests have led to nine straight months of double-digit price rises.
Shoppers are trading down and buying less. Hitting the discounters is a popular option. Both Aldi and Lidl have recorded sales growth of about a quarter over the period. They are taking a bite out of the market share of mainstream supermarkets, particularly those at the top and bottom end of the spectrum.
The Kantar panel suggests Waitrose sales grew by a lowly 2.1 per cent. Morrisons — whose footprint leaves it exposed to poorer areas — did even worse, with sales flat year on year. Ocado, catering to the well-heeled, grew by 3.4 per cent in the first quarter compared with the year before. At £124, the value of its average shopping basket was stable year on year, despite containing 7.5 per cent fewer products.
That leaves Tesco, J Sainsbury and Asda to slug it out in midfield. They have lettuce-limp ebit margins as it is: 4.5 per cent for Tesco and 3 per cent for Sainsbury’s. With shoppers shopping around — visiting three supermarkets on average every month — they have to be careful about raising prices. The trend towards cheaper products may be margin dilutive.
News that consumers are eschewing expensive, branded products in favour of own-label options — which were up 15.8 per cent in the latest four weeks — is worrisome for the likes of Unilever and Nestlé. Their ability to pass on hefty price increases underpinned their equity story in 2022. Any suggestion that might end would leave their stocks — highly rated on 19 and 22 times this year’s earnings respectively — looking expensive. Especially if inflation ends up being stickier than expected.
If you are a subscriber and would like to receive alerts when Lex articles are published, just click the button ‘Add to myFT’, which appears at the top of this page above the headline
