Food retail

According to GlobalData, over a quarter of UK consumers (28%) have reduced grocery spending in response to recent price increases.

Spending behavior varies notably across age groups – around 38% of Generation X respondents reported cutting back, compared with 31% of Millennials and 28% of Generation Z. In contrast, only 16% of Baby Boomers indicated similar adjustments.

Separately, the UK’s National Farmers’ Union has warned of further price increases across sectors, amid ongoing tensions in the Middle East. Against this backdrop, we would not be surprised to see renewed negotiations between producers and retailers to absorb at least part of the cost pressures.

We expect the same causes to have the same effect across Europe. However, we are still of the view that food retail is a relatively decent hedge to inflation. First, food spending isn't discretionary, and any trading down benefits larger food retail banners like Tesco, Carrefour, or Ahold. In food retail baskets, rising prices also usually translate into more private-label products, which typically generate higher margins. The sector had a decent run, and we now have a "Reduce" rating on the largest players.  Yet, we stick to our positive stance on Carrefour that still trades at a massive discount to its European-listed peers. 

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