Market Watch: Supermarkets fear that a new 'fat tax' on food will hit profits

SUPERMARKET rivals Tesco and Sainsbury's go head to head with trading updates this week amid warnings of a "perfect storm" for the sector as rivals battle for hard-pressed customers.

There are also warnings government may be preparing a "fat tax" on unhealthy foods, that would hit takings.

Like-for-like sales advances are likely to be anaemic for both Tesco and Sainsbury's, after the 0.8 per growth registered by Morrisons in the 13 weeks to 2 May, when it complained of the "virtual elimination" of food inflation.

Hide Ad
Hide Ad

UK leader Tesco, whose chief executive Sir Terry Leahy is to step down next March after 14 years, will be first up on Wednesday and it is likely to emphasise growth of its international business amid tough domestic markets.

In the UK – where it generated two-thirds of its 56.9 billion revenue last year – like-for-like sales should be 1.5 per cent up, said Evolution broker Dave McCarthy said but warned the figure could be flat or negative when January's VAT hike is stripped out.

Sainsbury's is also expected to grow like-for-likes by 1.5 per cent and has moved to expand space heavily over the last year as well as grow non-food sales. It is also seeking growth in smaller convenience stores, although McCarthy said he was bearish over the immediate prospects for the sector.

"The food retailing industry is heading towards a perfect storm and this week's announcements are likely to raise concerns," he said.

Housebuilder Bellway's update on Tuesday should help investors take the temperature of prospects in the sector amid signs that a recent bounce-back in prices is beginning to fade.

Computer games and consoles firm Game Group's latest update on Thursday will be awaited with trepidation by the City amid difficult markets and boardroom upheaval.

UK design and engineering giant WS Atkins is set to post a 10 per cent fall in underlying profits in annual results on Thursday but there have been signs of improvement in recent months.

The Epsom-based firm – which works on a host of major projects including the London 2012 Olympic park – flagged up results slightly ahead of City forecasts in April thanks to contract wins and strong cost controls.

Hide Ad
Hide Ad

It will also be a key week for economic figures with the first forecast from Chancellor George Osborne's Office for Budget Responsibility tomorrow, inflation figures on Tuesday and unemployment figures on Wednesday morning.

Week ahead


Majestic Wine (finals)


Bellway, Ted Baker (AGM), Tesco (trading updates)


Sainsbury (trading update)


Mulberry, WS Atkins (finals); Game (trading update)