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08 July 2021

Food Retailers Report Online Boom

As the UK economy continues to recover from COVID-19 restrictions, two leading food retailers have said that shoppers are returning to pre-pandemic habits.

Sainsbury’s and Ocado both announced their latest results this week, highlighting positive changes compared to the same period 12 months prior. According to Sainsbury’s, demand for online sales has fallen from peak levels as customers return to in-store shopping. Ocado, the online-only grocer, also said its average order size was falling, but both companies noted that online sales were still well above pre-pandemic levels.

Sainsbury’s, the UK’s second largest supermarket chain, reported that 18% of its sales currently take place online compared to just 8% in 2019/20. The London-based company also stated that online sales rose by 29% in the first quarter of its financial year compared with the previous year and were 142% higher than before the pandemic.

As restrictions continue to ease, Sainsbury’s expects shopping habits to change again. “As restrictions continue to ease, customers are beginning to return to more normal shopping patterns, with online demand reducing gradually from peak levels and transaction numbers increasing in stores,” the firm said.

After 19th July, when all legal limits on social contact are expected to be removed in England, Sainsbury’s will have no set rule on mask wearing in its stores and will leave it up to the choice of individual customers.

Although masks won’t be mandatory when England enters stage four of its lockdown roadmap, other supermarkets have refused to say if they will continue to ask customers to wear face coverings in their stores.
This will be no issue for Ocado, which has seen revenues boom as customers turned to online shopping during the pandemic. Retail revenues, which include those from its joint venture with Marks and Spencer, grew by 19.8% to £1.2bn in the six months to 30th May 2021.

However, the firm noted that as restrictions ease, sales may drop. “With the easing of social distancing restrictions meaning fewer meals consumed at home, basket sizes in the second quarter have begun to move toward pre-COVID-19 levels, exiting the period 10% lower than the average for the half,” Ocado said.

Although pandemic restrictions are planned to end soon, supermarkets and online grocers could face new challenges. The UK is now experiencing a shortage of HGV drivers caused by a combination of the pandemic, a backlog of drivers awaiting tests and Brexit, which is impacting food supplies. The country is estimated to be 100,000 drivers short, leaving logistics networks unable to keep up with demand.

In response to the issue, which the Road Haulage Association has described as being “worse than COVID”, Transport Secretary Grant Shapps announced that from 12th July there would be a temporary extension of drivers’ hours, while more driving tests would be made available.

Although the end of pandmeic restrictions is on the horizon, suppy shortages coupled with increasing demand means that challenges remain in the food retail industry.

Please note that investments and income arising from them can fall as well as rise in value. This communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned.
Food Retailers Report Online Boom
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