Managing cost crucial to profit for grocery retailers in 2022

By Rod Addy

- Last updated on GMT

Managing utility and raw material costs will be crucial for the whole industry this year
Managing utility and raw material costs will be crucial for the whole industry this year

Related tags Finance Supply chain

Managing soaring costs across the supply chain will be crucial to the delivery of profit for the big grocery retailers this year, according to Shore Capital analyst Clive Black.

His comments come as Food Manufacture​ gears up for a free webinar addressing that issue involving big processors such as ABP and Coca-Cola Europacific Partners and sponsored by ESB Energy. The Lean & Green: Save Costs and the Planet​ one-hour webinar will air on the 19 January at 3pm and will tackle areas such as how to cut rocketing energy bills. Readers can register for free​.

According to Black, anticipating forthcoming trading statements covering Christmas performance: "Sales will not be the only matter in the forthcoming trading updates from the UK supermarkets. Costs, both COGS​ [costs of goods sold] and operating expenses, are a much greater challenge for the supply chain and so the retail trade.

"How well these matters have been managed will be a key determinant behind our earnings expectations or otherwise."

Cost inflation important across 2022

He said cost inflation would be an important factor throughout the coming year, although he expected it to taper off in the fourth quarter of 2022.

Commenting on how well the top supermarkets had managed Christmas stock, following concerns supply chain disruption would hit availability, Black said: "Christmas 2021 was executed pretty well for shoppers in the UK from our store visits. There were plenty of sprouts and turkeys, too many in some cases.

"In terms of trading momentum, we believe Marks & Spencer could be the big winner ahead of Lidl and Aldi respectively. Of the 'big four', Tesco is expected to be the big winner and, we believe, potentially capable of delivering a New Year upgrade possibly alongside M&S."

Few households went without turkey

There was good sales momentum against tough comparatives and key product availability was 'fine' and few households went without turkey, despite fears, said Black. There was evidence of surplus stock, but no more than usual, he added.

"More concerning to us from an earnings perspective ... is that cost inflation in the system has been multi-faceted. So, developments that were glaringly obvious to mere mortals, albeit not the members of the Bank of England's monetary policy committee, from a number of key soft commodities (beef, coffee, durum wheat and milling wheat), energy, freight and labour, particularly vehicle drivers, have been feeding into the supply chain for over two quarters."

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