August ‘crunch time’ for supermarkets and food manufacturer suppliers

By Anne Bruce and Mike Stones

- Last updated on GMT

Related tags Asda Wal-mart Tesco

The big four may face "crunchtime" in August
The big four may face "crunchtime" in August
Next month will be “crunch time” for supermarkets and their food manufacturer suppliers, predicts the Economist Intelligence Unit.

Jon Copestake, analyst with the unit, told that with price inflation at a low point, the economy in the doldrums and “a lot of bad blood” ​between the big four supermarkets, matters would come to a head in August.

“It is a very austere market,”​ he said. “We have had poor weather recently, which means that stocks for barbecues will not have sold. I believe the Olympics will buoy up sales. The real problem will be after the Olympics in August. I think things will become much more aggressive then.”

More aggressive

Price wars had evolved between Tesco, Sainsbury, Asda and Morrisons with the rise of the internet, focusing across entire grocery baskets, as budget-minded shoppers increasingly used price comparison websites to check prices, he added.

“This has already been happening but we will see the situation evolve. There will be more discounting and couponing and promotional activity, but it will be interesting to see what develops. The market is polarising and consumers are shopping around.”

ING analyst Jan Meijer agreed that the internet had sharpened shoppers’ appetite for keen prices.

“Now transparency has increased so much due to the internet,”​ he said. The result was the UK was now in a constant state of supermarket price war, he added.

Last week the firm urged Tesco to look at cutting prices to remain competitive. “We feel that deeper price cuts are the only way to prevent Tesco customers from switching to Asda. This may be an unpopular decision in the short term, but we believe it will pay off longer term,” ​it said.

Downgraded Tesco

It downgraded its recommendation for Tesco from ‘hold’ to ‘sell’.

“I do think the average supermarket price level will have to come down now commodity prices have decreased in the past 12 months,” ​said Meijer.

ING added that the UK food retail sector was becoming “increasingly unattractive, with decelerating revenue growth and declining operating margins”.

Julian Wild, food group director at legal firm Rollits, agreed. He told that the UK’s food industry was “a shadow of its former self” ​as a result of “a whole string of companies being gobbled up”.

He highlighted the acquisitions of Northern Foods, Unigate, Wiseman, Hazelwood and United Biscuits.

To read how one analyst claimed this week that power is shifting away from retailers to their suppliers, click here​.

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