Tesco and Sainsbury's shares: where next for supermarkets?

The coronavirus pandemic has caused the FTSE 100 to plummet, but supermarkets like Tesco and Sainsbury's have bucked the trend. Can this realistically continue?

In the period between the start of March and the beginning of trading following the Easter weekend, the FTSE 100 shed around 12% of its value. Tesco posted a rise of 2.3% and Sainsbury's share price weakened by less than 1% in the same timespan.

At a time when several companies have suspended normal business operations, supermarkets are benefiting from trading that more closely resembles 'business as usual'.

These are still unusual times for supermarkets, given that the rush to stockpile goods swelled Tesco sales by around 30% as lockdown measures were introduced in the UK. The UK grocery industry generated sales worth £10.82 billion in a four-week period ending 22 March, a 20% increase on the same period in the previous year.

Sainsbury's was the biggest beneficiary in the March rush, with figures from Kantar indicating that the supermarket enjoyed a boost in trade by 22.4%. Kantar analysts attributed that outperformance of the national supermarket average to Sainsbury's strong presence in London, with stockpiling particularly intensive in the UK capital in March.

While these numbers ostensibly appear welcome for supermarkets like Tesco and Sainsbury's, there are concerns over whether these companies will actually benefit from increased consumer demand.

Are UK supermarkets a potential haven amid pandemic?

Business rates relief reduces pressure on supermarkets

The government's decision to provide a comprehensive holiday on business rates has been well received by supermarkets, although that reception has been frostier in some quarters.

A 18 March note on business rates from Sainsbury's indicated how the supermarket 'welcome[s] the support' from the government. Sainsbury's paid over £500 million in business rates in the financial year ending March 2019.

In that same year, Sainsbury's posted pre-tax profits of £239 million. Sainsbury's share price rose by around 13% following the news that the business rates holiday would save the supermarket more than double its annual profits.

Tesco has also capitalised on business rates relief from the government, saving around £585 million. The supermarket giant drew ire from some commentators by taking this rates holiday at the same time as distributing £900 million to shareholders in dividends.

That ire was exacerbated by the fact that Tesco generated pre-tax profits of £1.3 billion in the 12-month period beginning February 2019, thereby appearing to have the capital required to ride out the economic turmoil of the pandemic.

Tesco chief executive officer (CEO) Dave Lewis stressed that the government assistance is required to handle the conditions of the pandemic while reinforcing a need for dividend payments to support 220,000 small investors. Tesco's share price unsurprisingly soared following this move to reward shareholders. On 9 April, the day after the dividend news broke, Tesco shares rose by 4% to close at 232p.

Supermarkets face challenge to convert short-term sales success into long-term prosperity; analysts remain unconvinced

In a press release assessing the impact of COVID-19 on Tesco's financial health, the company indicated that a return to normal consumer behaviour by August could see much of that additional expenditure offset by food volume increases, business rates relief, and 'prudent operations management'.

Despite Tesco's commitment to its investors and optimistic August forecast, Shore Capital analysts downgraded the supermarket stock to 'hold' amid concerns that Tesco may pay as much as £925 million to finance recruitment and distribution during the pandemic.

At the same time, Shore Capital placed its 'buy' rating on Sainsbury's stock under review. This caution is based on fears that new consumer patterns during the pandemic will place excessive strain on supermarkets' operations.

While the March increase in sales and strong share price performance provide eye-catching numbers, both will be undermined in the long term if supermarkets have to spend millions more to meet consumer demand.

With the UK government not expected to relax lockdown measures in the coming weeks, supermarkets should continue to outperform the wider market in the short term. April shopping figures will be instructive in revealing whether that March boom was purely driven by panic or representative of new consumer patterns during the pandemic.

How to take a position on UK supermarkets

What’s your view on UK supermarket stocks? Will the global pandemic help or hinder their share prices? You can take a view on Tesco or Sainsbury’s shares – both rising and falling – with IG.

  1. Create an IG trading account or log in to your existing account
  2. Search for ‘Tesco’, or ‘Sainsbury’s’ in the search bar
  3. Choose your position size and click ‘buy’ to go long, or ‘sell’ to go short
  4. Confirm your trade

IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.

Please see important Research Disclaimer.

Seize a share opportunity today

Go long or short on thousands of international stocks.

  • Increase your market exposure with leverage
  • Get spreads from just 0.1% on major global shares
  • Trade CFDs straight into order books with direct market access

Live prices on most popular markets

  • Forex
  • Shares
  • Indices

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.


Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 20 mins.

The Momentum Report

Get the week’s momentum report sent directly to your inbox every Monday for FREE. The Week Ahead gives you a full calendar of upcoming key events to monitor in the coming week, as well as commentary and insight from our expert analysts on the major indices to watch.

For more info on how we might use your data, see our privacy notice and access policy and privacy webpage.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.