Yahoo Finance Supermarkets Hit By More Food Price Falls
Supermarket shares have fallen sharply as figures showed the fall in food prices accelerating and a report on the sector predicted that a new round of fierce competition was looming.
Tesco (Xetra: 852647 - news) , Britain's biggest grocer, led the FTSE 100 index with a fall of 9% while Morrisons tumbled 6% and Sainsbury (Amsterdam: SJ6.AS - news) 's was down 4%.
It came as the British Retail Consortium (BRC (Shanghai: 600466.SS - news) )-Nielsen (EUREX: 11400372.EX - news) shop price index showed food prices fell 0.8% in June compared to the same month in 2015, the biggest decline for more than a year.
Meanwhile analysts at HSBC said it looked as if Asda – which has been hit by sharp sales declines – was preparing to launch a major price-cutting campaign this summer.
Food prices have been under pressure for an extended period as major grocers Tesco, Sainsbury's, Asda and Morrisons fight off the challenge from discounters Aldi and Lidl.
Looking ahead, the sharp fall in the value of the pound will push up the cost of imported goods, though this is expected to take time to feed through – and it may not be feasible for supermarkets to pass these higher costs onto customers.
BRC chief executive Helen Dickinson said: "Continuing fierce competition means that putting up prices may not be viable for some retailers.
"For now, and for the short term at least, the good news for consumers is set to continue."
The sector could face a further squeeze on profit margin should Asda, owned by US giant Wal-Mart, kick start a new price war.
HSBC analyst David McCarthy said recent comments from the boss of Wal-Mart suggested that Asda "may be preparing a major price repositioning" which "could seriously damage sector profitability".
He added: "Any movement would have to be significant, in our view, and to a degree that the competition cannot match.
"Therefore we believe Asda may invest half its margin, or more, into price.
"A summer move is the most likely timescale and if Asda has not price repositioned by then, the immediate risk would recede."
It comes as Asda prepares to replace chief executive Andy Clarke with Wal-Mart's China boss Sean Clarke following seven straight quarters of like-for-like sales declines and a loss of market share that saw it surrender second place among Britain's biggest grocers to rival Sainsbury's (Other OTC: UBGXF - news) .
