Supermarket turmoil causes UK plc profits plunge


Like-for-like pre-tax profits for the FTSE 350 in the first quarter of the financial year were down nearly 37 per cent compared with last year, to £11.9bn.

The bad news for investors was driven by the turmoil in the supermarket sector over the last 12 months. Listed food retailers’ profits were 62 per cent, or £10.7bn, lower in the first quarter and improvements in other sectors, such as financial services were not enough to cover the massive shortfall.

Price cutting in a bid to regain customers from discounters Aldi and Lidl, and falling commodities prices, meant the supermarkets also acted as a drag on overall sales, according to The Telegraph.

Total FTSE 350 revenues were down 0.4 per cent on a like-for-like basis, to £354.9bn. Within that, supermarket sales sank 2.1 per cent, or £2.3bn, as Tesco, Sainsbury’s and Morrisons attempted to ride out the storms hitting the sector.

Beyond the supermarkets, sectors reliant on consumer spending generally improved. Travel, telecoms and utility companies all reported stronger results than last year.

Mid-cap companies also outperformed the FTSE 100 in terms of revenue and profits. The Share Centre, which compiled and analysed the figures, said smaller companies benefited from a relative lack of exposure to negative international trends such as the strong pound.

Helal Miah of the Share Centre said: “UK plc is struggling to reach escape velocity. FTSE 100 companies have been assailed by wave after wave of global difficulties that have knocked profits.

“First the financial crisis hit the banks, then commodity prices began to fall, followed by the impact of a strong pound hitting profits, and then lower oil prices. The price war in the supermarket industry is just the latest in the long succession of difficulties to hit the UK’s largest stocks.”

Retail analysts have predicted years of pain for supermarkets as they restructure and cut back following a long period of expansion. Tesco has scrapped more than 60 planned new stores, Sainsbury’s is developing new uses for its estate of out-of-town stores and Morrisons has installed a new team of senior executives to lead its effort.

The ratings agency Moody’s recently predicted food prices will continue to fall for up to 18 months, piling further pressure on the supermarkets. It said neither Tesco, Sainsbury’s or Morissons “really has the capacity to engage in many more rounds of price cuts”.