British supermarkets continue to feel the post-Brexit pinch
It’s been nine months since the UK voted to leave the EU. It goes without saying that things have been rather fluid in the markets ever since. As pass beyond the end of Q1 for 2017, the pound hangs perilously close to the euro, as expected. As a result, UK supermarkets continue balance precariously between rising supplier costs and the lighter pockets of their customers.
UK Favourite: Sainsburys (LON: SBRY)
Sainsbury’s, which stocks around 30,000 products, announced its figures for the beginning of 2017. In the report, like-for-like sales were shown to have fallen by 0.5% against the same period last year – that’s from growing by 0.1% in March 2016.
Why?
One reason could be a continued squeeze on consumers for everyday food products – on top of that the Bank of England expects inflation to rise to 2% in 2017.
A reported 4% drop in the value of Sainsbury’s share price over the past year paints a clearer picture – John Lewis, Tesco and Morrison’s all experienced a similar regression. Sainsbury’s has warned this is directly impacted from an uncertain economic backdrop affecting the value of the pound. Its chief executive, Michael Coupe said, “The market remains very competitive and the impact of cost price pressures remains uncertain.”
ETX Capital took an even dimmer view when they said, “Sainsbury’s did very well when Tesco and others were struggling but… It must contend with all the sector-wide problems, like falling margins and the sterling squeeze from suppliers.”
Live Sainsbury Price Chart (5 Min)
Import Costs
Of course, it’s not just the euro against which the pound has fallen. This is compounded by the fact that in the UK more than half of the food we consume is imported from abroad. According to studies carried out by the university of Aberdeen in 2016, “the UK is currently importing over 50% of its food and feed.”
Sainsbury’s has enjoyed some success, however, just not in its supermarkets. The takeover of Argos has proven fruitful with sales growth of more than 4%. So could diversifying out of food be the key to supermarket sustainability in these trying times? Not according to Tesco, they’ve recently acquired a huge food wholesalers, Bookers, and are on the verge of completing a deal for the takeover of Budgens and Londis.