Needle on 3 FTSE listed Supermarkets amid fall in online sales

Summary 

  • Online grocery sales saw a decline of 2.6% in the four weeks leading to 11 July.
  • Reopening of the hospitality sector and consumer spending on non-essential items were the major reasons for the dip in online grocery sales.

Online grocery sales of major UK supermarket chains saw a decline of 2.6% for the first time year-over year. During the lockdown phase, online grocery sales were the major contributor to supermarket chain revenue. In fact, Tesco Plc, the largest supermarket chain operator in the UK, had reported a 22.2% growth in online sales with an online order flow of over 1.3 million per week.

Reopening of hospitality sectors after an ease in Covid-19 restriction allowed UK citizens to dine out at restaurants and watch the football game at pubs and bars which had a significant change in consumer spending habits and behaviour, which resulted in a dip of 5.1% in overall grocery sales year-on-year, despite a 24% rise in alcohol sales and 23% rise in crisps and snacks during the EURO 2020 tournament as per the data by the brand consulting firm Kantar Group.

Let us look at listed Supermarket stocks that have been impacted due to the dip in the UK online grocery sales:

Tesco Plc (LON: TSCO)

The company operators the largest supermarket chain in the UK and Ireland with 4008 stores and has a 28.4% market share. The company also has retail business in 12 other countries outside the UK market, and it is the third-largest retailer in the world measured by gross revenues.

Tesco Plc reported a slowdown in UK market sales in the first quarter; the UK like-for-like sales rose by 0.5% during the quarter against 9.3% during the same quarter of 2019 because of ease in lockdown, which allowed the people to spend more on non-essential items. However, specific non-essential segments like general merchandise and clothing saw an uptrend in sales as people step out and get ready to socialise again.

Tesco Plc shares trade at GBX 230.90, up by 0.54% on 21 July at 9.05 GMT+1, with a market cap of £17.85 billion. In the last one year, the stock has given a 7.78% return to its shareholders.

Morrison Supermarket Plc (LON: MRW)

Morrisons Plc is the fourth-largest supermarket chain in the UK and has over 10% market share with 494 stores across England, Wales, and Scotland. The company reported a 1.6% rise in retail sales in the first quarter of 2021, a drop compared to Q1 of the financial year 2020 (Q1 2020: sales up by 5.1%).

The company has been in the news for takeover because of its sizeable real estate portfolio, owning over 90% of its retail stores. It received a takeover bid from the US private equity Fortress. The latest update regarding the takeover bid is that US private equity firm Apollo Global Management has decided not to make a separate bid for the Supermarket chain; instead it will be joining hands with Fortress investment for a £6.3 billion bid for Morrison Supermarkets Plc.

Shares of Morrison Plc trades at GBX 264.30, up by 1.19% on 21 July at 9.05 GMT+1 with a market cap of £6.37 billion. The stock has given a 44.33% return to its shareholders in the last one year.

J Sainsbury Plc (LON: SBRY)

The company operates around 1428 stores in the UK and is the second-largest supermarket chain with a 16% market share. The company is experiencing a slowdown in sales, and the same is reflected in the company’s earnings as well. For the year ended 6 March 2021, the company reported a 0.2% rise in revenue and a loss of £280 million after-tax.

Sainsbury Plc shares trade at GBX 279.20, up by 0.29% on 21 July at 9.05 GMT+1 with a market cap of £6.25 billion. In the last one year, the stock has given 46.68% returns to its shareholders.

Overall, the UK grocery segment is facing a high level of competition from the German discount chain Aldi and Lidl. In order to gain market share and customers, UK supermarket chains are forced to cut down product prices, impacting the revenues. With ease in restrictions and shift in consumer spending pattern, it is expected to put more pressure on companies’ margin. 


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