Analysts Bernstein Research have said that the UK food retail market is likely to be 'more defensive' in the medium to long term following today's Brexit vote, with a fall in the value of Sterling set to drive food inflation.
In a briefing note, Brexit - How It Impacts UK Food Retailers, Bernstein suggested that UK retailers will be unable to 'absorb anything of the order of 5% extra input inflation'.
Increased inflation will impact 'all retailers equally, and given some of the European sourcing by hard discounters, it may potentially hurt them more'. It suggested that the discounters might look to allocate capital away from the UK 'as other markets look more attractive'.
In terms of the 'Big Four', Bernstein suggests that the recent Argos deal means Sainsbury's has more Brexit exposure than Tesco or Morrisons.
'Non food retail is a higher beta sector, more exposed to consumer sentiment and therefore changes in shopping patterns,' it said. 'The fall in the value of the pound will mean non-food sourcing by Argos will become more expensive. They may be protected by hedging arrangements in the short term but longer term margins will be under pressure from rising prices of foreign inputs.'
In terms of the immediate impact on European retailers, Bernstein noted that the impact on Ahold was the least severe, given its strong presence in the US, however, Carrefour (-8%) and Casino (-5%) have been impacted, with the possibility of a forthcoming French exit from the EU weighing on their valuation.
© 2016 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. To subscribe to ESM: The European Supermarket Magazine, click here.
