Supermarkets expect healthy income despite US attacks - Brief Article - Statistical Data Included

Eurofood, Oct 11, 2001

With analysts carefully following the consumer reaction to the atrocities of the US terrorist attacks one trend is expected to be quite apparent, and that is a return to comfort eating.

As expenditure on durables falls, consumers tend to compensate by buying comfort goods such as chocolate and alcohol.

Terry Leahy, chief executive officer of UK supermarket Tesco believes if the group is to maintain the 7% rise in like-for-like sales seen in the first half ending in 2001, comfort eating will need to have a renaissance. Leahy is doubtful as he sees "a return to more normal levels of trade, in the second half of the year."

However, `normal levels of trade' is a much better scenario that most UK companies can hope for. As costs have not risen as much as prices, earnings growth in the food sector has improved at a time when most of the economy is struggling. It would seem that supermarket chains, whilst potentially vulnerable in the coming months, will be one of the better off in the likelihood of a recession.

With Tesco reporting a recent 14% rise in half-year profits, Morrison 8% and Somerfield a 4.2% rise in like-for-like sales, the figures back up reports from Taylor Nelson Sofres that there is no sign of a slowdown in supermarket sales.

According to Schroder Salomon Smith Barney, market growth has accelerated from a long-term average of 2-3% to almost 9% in July, an unprecedented increase in the last decade.

However, Sainsbury's chief executive officer Peter Davis warned that in terms of sales, comparisons will certainly toughen in the autumn and that the combination of strong sales and inflation was unlikely to last.

Whilst cautious, it seems the supermarkets must be quietly confident as they announce new jobs and openings of further stores across the country.