16 June 2023
If you are covering Tesco’s latest financial results, please find below a comment from Chris Beckett, head of equity research at Quilter Cheviot:
“Tesco’s results this morning highlight the fact that this inflationary environment is not one that benefits the food retailers, despite the accusations of price gouging. Yes, UK Food and Drink inflation is around 20%, but this has only led to an increase in sales for Tesco of 9%, which suggests there has been a decline in volumes at the supermarket.
“Ultimately, food retailers have a lot of uncontrollable costs, from increases to the minimum wage to heating and refrigeration. As a result, simply putting up costs in line with inflation isn’t going to lead to a boost in trading. What the supermarket is seeing is customers cutting back on the amount they are buying, but trading this in for quality – Tesco’s Finest range is up 15%, while it is also seeing some downtrading from Waitrose shoppers, although this will likely be offset by the consistent challenge from the likes of Aldi and Lidl.
“For investors, Tesco is the best of a bad bunch in the food retail space. They execute their operations well and are best placed on pricing, but ultimately this is not an environment in which we expect them to succeed beyond what they would do normally. Perhaps once the cost of living crisis eases and the economic environment improves we will begin to see a better picture, but for now profits aren’t going up and margins remain very tight.”
