BASEL: Supermarket sales have sunk below the £100 billion mark for the first time in six years amid fierce competition in the UK grocery sector, a report has found.
Food retail revenues dropped by 3% to £99 billion in the second quarter, according to The Share Centre’s Profit Watch UK study, with overall revenues of UK plc slipping 2% to £341.7 billion over the period.
The big four grocers have been struggling to protect their market share from the rise of German discounters Aldi and Lidl.
Meanwhile, the UK launch of online grocery service AmazonFresh in June looks set to make the grocery sector even tougher.
Helal Miah, investment research analyst at The Share Centre, said intense price pressure led to a tough year for UK supermarkets, while companies exposed to UK consumer spending enjoyed a fillip from a “burgeoning” UK economy.
But he said the lift will be short lived as uncertainty triggered by the EU referendum result takes its toll on economic growth.
“The implications of the economic slowdown will mean lower demand for sectors such as housebuilders and retailers, while the travel industry is already feeling the effects.
“Easyjet saw its costs soar by £40 million within four weeks of the referendum. Financial services may suffer too, if passporting to the EU fall by the wayside. Profits in these sectors will be harder to come by in Brexit Britain.”
The report said the food retail sector and blue-chip miners dealt a blow to the overall operating profits of UK plc, causing it to drop 3% to £27.1 billion in the second quarter.
However, pre-tax profits for UK plc jumped by more than 44%, as a swathe of asset write-downs in mining, oil and food retailing came to an end.
It said the plunging pound against the dollar in the wake of the EU referendum result would also deliver a significant uplift for companies which publish their accounts in sterling but have large overseas operations.
Mr Miah added: “The devaluation of the pound will boost the sterling value of any overseas business, whether via exports, or from translating the value of overseas operations back into pounds.
“This is more than just accounting. For sterling investors, that will mean extra dividend income from those supercharged profits. This is mainly why the FTSE 100 has performed so well since the referendum.”
