Here in the UK, the cost of living continues to rise. In January, the ONS revealed that the price of food and non-alcoholic beverages increased by 16.8% in the year to December: the largest annual rise we have seen since 1977.
Consumers, however, still need to eat. In order to attract a greater share of the market, various supermarket groups have launched new low-price products and ranges as well as locking prices. But how are these supermarkets performing – and are they worth investing in?
Historically, supermarket stocks have been classed as defensive: they tend to have fairly consistent levels of demand, are lower risk than other stocks, and can provide a stable, steady return over the long term.
Despite the rising cost of living, supermarket share prices rose in the 12 weeks to December 2022. Of course, this is likely – at least in part – to be due to the fact that consumers are being forced to spend more on groceries as food and drink costs increase. Many shoppers are changing their shopping habits: for example, buying own-label rather than branded goods, or buying more store cupboard and frozen products and fewer fresh groceries.
Consumers may be choosing different products, but the fact remains that supermarket spend is still growing. However, certain supermarket chains may well perform better than others over the coming year.
Which supermarket chains should I invest in?
Recent fortunes have been mixed for the UK’s top supermarket chains.
While Tesco and Sainsbury’s posted impressive Q4 2022 results, Morrisons recently announced an increase in total revenue but a fall in earnings. Ocado shares, meanwhile, have lost two-thirds of their value over the last two years.
Many of the UK supermarket brands have announced plans to ramp up both performance and investment. This year, Lidl intends to invest £4bn into British food businesses. Bestway has taken a 3.45% stake in Sainsbury’s – but has denied rumours of a takeover bid. Struggling Morrisons, meanwhile, has asked staff to invest in the business.
However, consumer loyalty to supermarket brands is not high at the best of times, let alone during a cost of living crisis. As a result, supermarkets need to compete strongly on price – but lowering prices means reducing their profit margins.
It’s a tough environment for many sectors – and that includes UK supermarkets. Are they part of your portfolio for 2023?
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