Despite stock markets continuing to tumble across the globe, analysts have suggested the global grocery sector could be set to benefit from the rapid escalation of demand driven by the Covid-19 pandemic.
The UK-listed supermarkets have already significantly outperformed the wider market during the coronavirus-driven crash and have been tipped to continue this outperformance.
Bernstein analyst Bruno Monteyne said the recent closure of schools, restaurants and bars in the UK has led to a £15bn shift of sales from out-of-home to in-home food consumption.
He said the first real data points were emerging to show a “material” uplift in sales volumes in the early weeks of the crisis.
Morrisons (MRW) in the UK had 0% like-for-like growth in February, but by the first week of March this had spiked to 10%-15%, by the second week to 15%-20%, and even higher in the third week.
Meanwhile, Ocado (OCDO) is also growing at 20% and could be processing as much as four or five times its current level of orders if it were not capacity-constrained.
“That means volumes are probably growing at 25%-plus currently in the UK. These are crazy levels of growth for a mature industry,” he said.
While the level of pandemic buying will subside as consumers hit the physical storage capacities of their fridges, freezers and cupboard space, it is likely to be reinvigorated by increased lockdowns and restrictions to movement.
“We expect at least a one-off 8% profit boost this year and that is assuming life returns to normality after about six months.
“If not, then the boost from calories shifting from out-of-home to at-home could last a lot longer and increase the one-off profitability boost.”
Shore Capital’s Clive Black concurred: “UK supermarkets and their key suppliers should, in time, financially benefit.”
“Large stores, with a full assortment, bulk packaging and substantial car parks are coming to the fore, making trading for the big four supermarkets especially strong at the moment, maybe particularly so at Tesco Extras and Asda supercentres,” he said.
He also suggested premium grocers, Waitrose and the Co-op, with their full-assortment village and neighbourhood stores, should also benefit as should frozen food players Farm Foods and Iceland.
However, Marks & Spencer (MKS) may be less well placed to benefit – even disregarding its under-pressure clothing and home business – given its tailored range and lack of ambient, household and proprietary brands.
The FTSE 100 has collapsed 33.9% since 1 January, but the three big listed grocers have seen far less significant share price falls.
Morrisons is down just 7.4% since 1 January and has actually seen its share price rise 8.5% over the past five days.
Sainsbury’s (SBRY) is down 10.5% since 1 Jan while Tesco (TSCO) is down 14.2%.
Ocado is the only FTSE 100 firm to have seen its share price rise so far in 2020 – with its shares up 5% (and 13.6% in the past five days) to 1264.3pts.
This pattern has also been seen in international large grocery players.
US grocery giant Kroger (KR) is up by 9.6% since the new year, Costco is down just 1.2% and Ahold Delhaize (AD) is down 11.3%.
Despite more extreme social distancing measures in France, Carrefour (CA) is down a relatively modest 9.8% so far in 2020 while Casino (CO) is down 18.4%.
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