Food situation in the UK
When 15% of all fresh fruits, along with 55% vegetables and 60% of pork are grown in the UK, you get the sense a falling British Sterling is bad for food prices.
History in the making
To put it all into perspective, the British Pound is trading against the USD at 30 years lows and (more importantly) against the Euro at 6-year lows.
But a detailed look into the Euro/GBP reveals that, if you ignored the “two-month” period during the great financial recession in early 2009, then the Pound is at an all-time low against the Euro since its inception.
Will they or won’t they?
Right now food prices are in deflation mode and declining at an annual pace of -2% for the past two years.
The question on everyone mouths (no pun intended) are, will the supermarkets pass the costs on to its consumers?
Given the “grocery sector” race to the bottom, it is not hard to imagine a weak Sterling not affecting consumers.
Because the discounters are waging a “smash and grab” of the market share from the traditional players, therefore it is likely that Sainsbury (the most exposed due to 50% of all products imports are overseas), Tesco, Asda, and Morrison will be absorbing the costs.
That means lower earnings, if not losses and a dire balance sheet outlook.
All this expectation are forecast in the future because hedges are in place to absorb weakness in the Pound, but by next year these get to unwind and exposes the supermarket players to higher input costs.
It depends on Sterling remaining weak to next year.
Tesco and Unilever (new development)
In the latest twist to the struggling grocery sector, it seems Tesco is waging a price war with Unilever, maker of Marmite, Ben & Jerrys, PG Tips and the much loved Pot Noodle.
The conflict is due to Unilever raising its wholesale price of its products to counter a fall in Sterling leaving Tesco with two choices:
1. Push up prices and let customers bear the burden, or
2. Absorb the price rises, therefore reducing its margins.
Tesco’s CEO, Dave Lewis (a former Unilever executive) is calling…
