Interactive Investor’s Victoria Scholar on supermarkets, China’s growth and a new podcast
Competition across UK supermarkets is hotting up. In an already low margin business, the likes of Tesco, Sainsbury’s, Waitrose have been reducing their prices in order to compete with one another and drive customers into their stores. With inflation coming down as last year’s energy crisis subsides somewhat, and the post-covid supply chain bottlenecks ease, supermarkets have been granted some wiggle room to price their products more flexibly. Morrisons, for example, launched its eighth round of price cuts this year, reducing over 1000 prices since January.
The challenging economic backdrop with elevated inflation and higher interest rates has squeezed consumer budgets and impacted shoppers’ behaviour. Individuals and families have become much more price sensitive, prompting them to hunt around across different supermarkets for the best bargains and offers.
Shoppers have also been trading down to budget alternative products offering lower price tags than their branded equivalents. Analysis from Which? this week showed that some staple foods can cost as much as 910% more than the same product from a budget range.
This increased price consciousness among shoppers has played into the hands of the growing German discounters, Aldi and Lidl, which are best known for their rock-bottom price tags. Aldi overtook Morrisons last year to become the UK’s fourth largest supermarket. Aldi said two thirds of UK households are shopping at the chain, with the supermarket gaining almost a million more customers over the past year.
The growth of Aldi and Lidl has kept the other supermarkets like Tesco and Sainsbury’s on their toes, benefitting consumers by making the sector increasingly competitive.
In terms of shares in the sector, Tesco and Sainsbury’s have been stock market winners this year, both up around 20% year-to-date. This is thanks to the increase in investor appetite for defensive names in sectors like consumer staples which help portfolios weather the economic storm clouds.
Evergrande’s a big problem
According to a Bloomberg Intelligence gauge, Chinese property developer stocks slumped by the most in nine months on Monday driven by concerns about Evergrande, which abandoned an important creditors’ meeting at the eleventh hour. Its shares plunged by nearly 22% in a single session, reflecting concerns over its debt restructuring plans which hit a stumbling block over the weekend. The real estate company defaulted back in 2021 and has been trying to get back on its feet ever since. Evergrande has become synonymous with China’s broader property crisis.
Feeling the stress?
Economists at KPMG say the UK will grow by just 0.4% this year, down from 4.1% in 2022 with growth slowing to 0.3% next year. Inflation is expected to hit 7.5% in 2023 and 2.7% in 2024. KPMG expects the Bank of England to refrain from further rate hikes, keeping interest rates on hold at 5.25% after last week’s pause which followed 14 consecutive rate hikes. Ongoing inflation, higher interest rates, consumer, and business uncertainty as well as weak productivity are weighing on the UK’s economic outlook.
Oil set to fly?
The recent rally for oil could be set to continue. Brent crude and WTI, the key global benchmarks, have been staging gains, surpassing 2023’s highs on the back on constrained supply after Saudi Arabia and Russia cut oil production to support prices. This is offsetting the weak global demand backdrop. JPMorgan said Brent could continue upwards towards above the psychological resistance level of $100 a barrel and could even skyrocket to $150 by 2026 as part of a new “energy supercycle”.
Can I quote you on that?
A Great British slowdown….has hamstrung our economy, and left families £1,400 poorer.Greg Thwaites, Research Director at the Resolution Foundation
From HS2 to Chinese spying: Political currency
Political Currency is a new podcast hosted by former Chancellor of the Exchequer George Osborne and former Shadow Chancellor Ed Balls, who has been cultivating a career in broadcast since leaving politics. Following the success of The Rest is Politics, hosted by Alastair Campbell and Rory Stewart from the left and right of the political spectrum respectively, other former politicians are looking to get in on the success of the bipartisan political and economic debates. So far, two episodes have been released, the first discussing a range of topics from Chinese spying to HS2 and the pensions triple lock. This week’s episode focuses on Prime Minister Rishi Sunak’s plans to roll back climate change targets as well as the Bank of England’s decision to keep rates on hold.