Supermarket stocks were under pressure on Thursday, continuing their recent choppy trade amid ongoing concerns about heightened competition, declining profits, dividend sustainability and a critical government into the industry.
The Elliott Report, an inquiry into the industry launched as a result of the horse-meat scandal, has warned that aggressive supermarket buying practices have worsened and that the current price wars exposes the UK to further food crime.
The government has announced plans to create a new food crime unit with full police powers to protect the public.
This comes not long after grocery giant Tesco, the UK's largest retailer, rocked the sector on Friday by giving its second profit warning in two months and saying it would slash its interim dividend 75%.
The stock was down 1.2% in afternoon trade on Thursday, having now fallen nearly 8% over the past week.
The company said that its new chief executive Dave Lewis would be joining the board one month earlier in planned, as it noted that the business "continues to face a number of uncertainties", though bookmaker Paddy Power has started taking bets on how long Lewis will last in the role, with a tenure of three to four years seen as most likely.
Tesco has been battling with fierce competition from discount chains and recent price wars among the Big Four, as businesses struggle to adapt to the changing shopping habits of British consumers.
Last week's profit warning also sparked negative readacross for rival chains such as Wm Morrison and J Sainsbury on fears that the incoming Tesco boss could launch another round of price cuts in an effort to win back market share.
Figures from the British Retail Consortium and Nielsen out on Wednesday showed that UK food prices rose at an annual rate of just 0.3% in August, representing the lowest level of inflation since records began in 2006.
Morrison's stock was down 0.8% on Thursday, while Sainsbury lost 0.7%.
Morrison was also being pushed lower after Santander downgraded the shares
from 'hold' to 'underweight', saying it is facing a "dividend dilemma". The bank believes that the full-year payout from the firm could amount to just half of last year's.
"We think the increasing competition in the UK, particularly with the prospect of a resurgent Tesco and the continuing pressure on margins means that the Morrison dividend (currently yielding almost 8% if the 5% promised increase materialises) is unsustainable, in our opinion," the bank said.
Upcoming first-half results from Morrison on 11 September are expected to be "weak" though have been well flagged, Santander said. It estimates a 55% decline in pre-tax profit.
High street bakery chain Greggs, butchery owner Crawshaw and wholesale group Booker were also trading in the red. Booking was extending losses after German retailer Metro on Wednesday sold its entire 9% holding in the UK cash-and-carry chain.
Analyst Charles Hall from Peel Hunt said that while the transaction should have no operation impact on Booker, it "does remove Metro as a potential purchaser".
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