Supermarket bosses under pressure
The business news that matters
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Representatives from the UK’s biggest four supermarkets have been in front of MPs this morning taking questions about food price inflation. As you can imagine, Asda, Morrisons, Tesco and Sainsbury’s have not had an easy ride from MPs on the business and trade committee. The MPs wanted to know why the retailers are reporting bigger profits now than they were before the Covid-19 crisis, apart from Morrisons.
The International Monetary Fund posted this graph on Twitter, which provides the context for these questions…
The representatives from the supermarkets were:
Kris Comerford, chief commercial officer at Asda
David Potts, chief executive of Morrisons
Gordon Gafa, commercial director at Tesco
Rhian Bartlett, food commercial director at Sainsbury’s
Seen as Potts was the only chief executive to attend, let’s give the first quote to him. Potts told MPs that Morrisons’ prices have never been as close to Aldi and Lidl, the German discounters, as they are today. He said:
“We are acutely aware of the pressure that many millions of ordinary people have come under as a result of this cost of living crisis, and food inflation in particular.”
All the retailers denied they were profiteering from inflation. Sainsbury’s Bartlett insisted that the company had not passed on all of its cost rises to customers. She said:
“We are inflating behind our input costs, and we are inflating, wherever possible, behind the market.”
Tesco’s Gafa clashed with Labour MP Darren Jones over whether Tesco’s profits are actually higher than before Covid (they were comparing adjusted profits and statutory profits) while Asda’s Comerford insisted that his company is not any less competitive on price, despite having to fund interest payments on its debt, a consequence of the Issa brothers and TDR Capital buying the supermarket chain.
The supermarkets were also questioned on fuel and gave their backing to more transparency on petrol and diesel prices through an app or website that could track them across the country.
The latest data from the British Retail Consortium actually has some good news on inflation. It said that shop prices are up 8.4 per cent in June compared to the same month last year, which is down from the 9 per cent recorded in May. Food price inflation fell from 15.4 per cent to 14.6 per cent while inflation on fresh food dropped from 17.2 per cent to 15.7 per cent. You can find the BRC’s statement here
For more on this topic I recommend reading an analysis by Ian Shepherd, a retail expert and former chief executive. He has looked at how rising profits are actually being driven by companies investing more after Covid-19 as they try to get their supply chains back to normal and catch-up on investment they planned to make during the pandemic. In other words, food retailers are unfair targets for criticism. You can find that piece here
Other stories that matter…
1. One of the challenges with electric vehicles is what to do with damaged or old batteries. Many batteries are scrapped and replacing them is expensive, meaning that electric cars are often just written-off. However, Bristol-based Metis Engineering has developed a sensor that monitors the health of car batteries, meaning, for example, that insurance companies can judge whether a battery can be saved after an accident and avoid writing-off what may be a new vehicle. You can find a Reuters story on Metis here. In other electric vehicle news, Cornish Lithium has warned it needs to raise £10 million by the end of next month or it will collapse. Cornish Lithium wants to supply lithium for electric vehicle batteries by mining the metal from a site in Cornwall. Lithium is a key material in electric car batteries. The company is in talks with existing shareholders about raising funds. Story by The Times here
2. JD Sports has said in a stock market statement this morning that it is on course to report annual profits before tax and adjusted items of £1.04 billion. That could put the sportswear retailer into a small and exclusive club of UK retailers that have reported annual profits of £1 billion, which includes Marks & Spencer and Tesco (although JD’s adjusted items were £551 million in its last financial year, meaning its statutory profits could be a lot lower). JD has enjoyed surging demand for fashionable trainers among young shoppers. The retailer has expanded around the world and its share are valued at £7.2 billion on the stock market, double the value of M&S. However, shares in JD are actually down more than 5 per cent today. That is because the company has also said that in North America it is “experiencing some softening in trade consistent with other businesses in the sector”. You can find JD’s statement here. This is how JD Sports shares have moved over the last five years, graph courtesy of Google Finance
3. The debate about flexible working rumbles on. Mel Stride, the work and pensions secretary, has said that working from home is contributing to musculoskeletal problems and forcing people out of the workforce because people are sitting at their computers with a bad posture. Interview in The Times here. In the US, businesses are growing impatient with staff always working from home on Mondays and want them to come to the office on that day to kickstart the week. That is according to a new Wall Street Journal piece headlined “Mondays are the new office fight”. You can find it here
4. Amazon is trying to sign-up local businesses to help them deliver orders to customers, according to Axios. This initiative is called Amazon Hub Delivery and is focused on the US at present. Amazon is looking for ways to improve the so-called “last mile” of delivery, where orders are taken from local delivery hubs to the customer. Story here
5. Actors Ryan Reynolds, Rob McElhenney and Michael B Jordan are investing in the Alpine Formula One team, a €200 million (£157 million) deal that got plenty of attention on Monday (more here). But another sporting investment has just emerged that is more interesting because of what it says about the direction that sport may be heading. Fenway Sports Group, the owner of Liverpool and the Boston Red Sox, has bought a team in a new virtual golf league. The terms of the deal are undisclosed but FSG will take a 3 per cent stake in TGL, the name of the league, and control the Boston-based team. What is striking about TGL is that it has A-listed backers. The majority of the shares in TGL are owned by TMRW Sports, a vehicle controlled by Tiger Woods and Rory McIlroy, while the PGA Tour owns 18 per cent and Reddit co-founder Alexis Ohanian and his wife Serena Williams have invested in a Los Angeles team. Could TGL represent some new fusing of sport and modern technology? A story to watch. The Financial Times reported on the deal here
And finally…
Sir Elton John closed out Glastonbury with a spectacular show on Sunday and for those lucky enough to be there (I wasn’t) it rounded off what looked like a brilliant weekend in the sunshine in Somerset, despite some murmurs of discontent that the overall line-up wasn’t as good this year.
However, Sir Elton may be about to lose one of his records. The Glastonbury performance was the final UK gig in Sir Elton’s Farewell Yellow Brick Road tour, which the singer has said will be his last tour. Farewell Yellow Brick Road started in 2018 and is due to end next month. The tour has generated $887 million (£697 million) in ticket sales, which is a global record. But that record may be about to be broken. According to a new report in The Wall Street Journal, Taylor Swift’s new Eras Tour is expected to generate more than $1 billion in sales. Full story here
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Best
Graham
Great post, Graham, and many thanks for the link to mine on business profits and greedflation.