Record month for supermarkets as consumers spend extra £1.9bn but what’s next for the sector after Covid-19?
Sector review: UK Supermarkets
It’s no surprise in recent weeks supermarkets have recorded substantial customer visits and spending. The closure of all entertainment and leisure services has included restaurants, cafes and bars, ultimately meaning more home-cooked meals. In the four weeks to March the UK grocer industry recorded the highest sales growth in history coming in 21% higher than last year, driven by more frequent shopping sessions and higher spending. Stockpiling and panic buying has also driven record sales numbers and impressive year-on-year growth for most of the UK grocers, so it’s easy to understand why the industry is one of the better performing areas in the FTSE 100 in comparison to that of the wider market. Of course, stockpiling is a shorter-term effect antd will not last forever but what it does highlight is the importance of these businesses to the functioning of society, the responsibility they bear showcased in the rationing of certain products to maintain societal order.
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The UK grocer industry has been in a period of structural change for the last few years as discount retailers and evolving consumer spending habits have changed the dynamics of the industry. Specialised online-services such as Ocado have come to the forefront this year, with its share price rising at around 3.5% year to date as a result of average weekly orders up roughly 10% in Q1 2020, derived mostly by the Covid-19 impact. From this perspective, the current circumstance has offered the chance for the big UK grocers to take a step back and analyse their business models whilst preserving cash through deferring dividends and cost efficiency. We have seen examples of this in recent weeks as management have been effectively pressured into considering alternative avenues for growth, whether that’s been through online or technological propositions in order to combat the shift from consumers to online businesses such as Ocado.
All of this brings some longer-term optimism into the equation, potentially providing the foundation for some of the bigger UK grocers to bring greater efficiencies and services into their business models. In the long term, this may even narrow the gap between them and some of the new disruptors in the industry. If any theme comes out of the current situation we find ourselves in, it’s likely to be ‘change’ and for the big UK grocers it’s needed, with market share continuing to slip through their fingers.
Market share: 2019 vs 2020
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