FEATURE
How trading down could affect supermarkets and consumer goods companies History shows households typically tighten their purse strings in tough times
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hen supermarket giant Tesco (TSCO) posted its first quarter trading update, chief executive Ken Murphy made a reference to ‘changing customer behaviour as a result of the inflationary environment’. His comment reverberated through the market, unsettling investors who had come to rely on the grocery sector as dull but dependable – after all, whatever else is happening in the world, we all must eat. Murphy was essentially describing how the sharp rise in inflation is having a profound effect on how and where we spend our money.
UK grocery sales by volume and grocery prices 12 week preceeding period Sales
Volume
Prices
0 −10 Oct 2021
Jan 2022
Apr
Inflation as measured over last 4 weeks of the 12-week period Chart: Shares magazine • Source: Kantar Worldpanel. Data correct as of 30 June 2022
SMALLER BASKETS Two things have become apparent since last summer according to the monthly ‘till roll’ data provided by consultancy Kantar Worldpanel. The first is that the volume of items we’re buying at the supermarket has been falling as prices have been rising. While the underlying strength of sales has been hard to pin down due to the pandemic – which drove a huge spike in consumption in 2020 and a subsequent fall in 2021 on a comparable basis – the data from Kantar has shown a steady fall in the number of items in the typical family shopping basket. Since grocery inflation turned positive in the 12 weeks to early September 2021, sales by volume have steadily fallen whereby in the latest period to mid-June they were down over 10%. They were flat in the same period last year, so we aren’t comparing a weak period with a particularly strong period; we are seeing a fundamental change in shoppers’ behaviour. VALUE PROPOSITION The second obvious change in spending, which pre-dates the pandemic but has accelerated sharply since the economy reopened, is the rise in popularity of the discount retailers Aldi and Lidl. Frustratingly for investors, you cannot buy shares in these companies as they are privately07 July 2022 | SHARES |
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