Investing in Supermarket Stocks
As dispensers of food, drink and a variety of other consumer staples – supermarkets are often touted as prime examples of defensive stocks. With slow economic growth and the cost-of-living likely to remain issues in 2024, does it make sense to invest in supermarkets?
If so, what are the best supermarket stocks to invest in? In this article, we highlight 2 supermarket shares to watch over the year ahead.
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Investing in Supermarkets
Although inflation is falling, it remains above target levels; meanwhile, whilst cuts are expected, interest rates are likely to remain elevated throughout the year. This combination of high inflation and high interest rates are showing signs of weighing on global economic growth.
In times such as these, with the economic outlook looking uncertain, many investors attempt to shield their portfolio by rotating out of riskier stocks and focusing on investments which have defensive characteristics.
So-called defensive stocks are companies which, regardless of the prevailing economic climate, perform relatively consistently and, consequently, can add stability to an investment portfolio.
Supermarket stocks are one such example. The goods which these businesses sell are needed throughout all stages of the economic cycle, meaning that supermarkets tend to be able to rely on consistent levels of demand.
However, the grocery industry is highly competitive. As there is not a significant difference in many of the products offered by each store, there is not a high level of consumer loyalty. Many shoppers will simply go wherever they can get the cheapest prices, something which is particularly true when the cost-of-living is elevated.
This leads to intense price competition amongst rival supermarkets, as businesses battle to steal market share from one another. Whilst lower prices incentivise consumers to return, it also leads to thin profit margins.
The Best Supermarket Stocks to Watch
So, which supermarket stocks might investors consider adding to their shopping baskets in 2024? In the following sections, we will take a look at two grocery store stocks.
Tesco
Whilst low-cost retailers such as Aldi and Lidl have wrested a sizeable amount of market share from the more traditional UK supermarket stocks, Tesco remains firmly in control.
The supermarket giant accounted for 27.4% of the UK market in October 2023, considerably more than second-placed rival Sainsbury's at 14.8%. Tesco also has a strong presence in Ireland, where it accounts for roughly 24% of the market, and further operations internationally.
Tesco’s dominant position in the UK has allowed it to weather the economic uncertainty of the past few years, performing robustly and continuing to pay dividends to shareholders.
Although, in the ten-year period ending 31 December 2023, share price dropped 13%, its performance over the last five years has been more impressive. In the five-year period ending 31 December 2023, Tesco shares climbed 53%, considerably outperforming the wider FTSE 100 which managed just 15% over the same time.
After years of consistently increasing or maintaining dividend payments, dividends were abruptly halted in 2015. However, payouts were resumed in 2018 and have subsequently grown or held steady in each year since. At the time of writing, Tesco shares have a dividend yield of around 3.8%, which is consistent with that of the wider FTSE 100.
Walmart
We head across the Atlantic for the next of our grocery store stocks.
Walmart is the largest company in the world in terms of revenue, generating $611 billion in the year ended 31 January 2023, and is the leading grocery retailer in the United States. The company also has exposure to the UK market, through an equity holding in popular British chain Asda.
Like Tesco, Walmart has performed well in challenging operating conditions over the last few years, which is something the company has a history of doing.
During the ‘Great Recession’ in 2008, for example, whilst the S&P 500 dropped more than 37%, Walmart recorded gains of 20%, earning it a reputation for having recession proof qualities.
In the five years ended 31 December 2023, the supermarket shares rose 69%. Of course, this doesn’t account for dividends, of which Walmart has a long history of paying. The company has increased its annual dividend every year for 50 consecutive years, earning it the status of dividend king. At the time of writing, its dividend yield is a modest 1.3%.
How to Invest in Supermarket Shares
With an investing account from Admirals, you can invest in the supermarket stocks highlighted in this article. In order to start investing, follow these simple steps:
- Open an Invest.MT5 account.
- Log in to the Dashboard.
- Open the web trading platform.
- Search for supermarket stocks and click the relevant symbol to open a price chart.
- Create a new order, enter a number of shares and click ‘Buy’ to send your order to the market.
Investing with Admirals
With an Invest.MT5 account, you can choose from over 4,300 stocks and over 200 Exchange-Traded Funds (ETFs). Other benefits of the account include:
- Competitive transaction fees and no account maintenance costs
- Exclusive access to our Premium Analytics portal
- The ability to buy fractional shares in a wide variety of the world’s most exciting companies
In order to start enjoying these benefits and many more, click the banner below and open an account:
FAQ
Is Asda on the stock market?
No, Asda is a private company. It was previously owned by Walmart, who sold the supermarket chain in 2021.
Which supermarket in the UK has the biggest market share?
Tesco dominates the UK supermarket industry, with a market share of 27.4% in October 2023.
Who are the Big 4 UK supermarkets?
Historically, the Big 4 UK supermarkets referred to Tesco, Sainsburys, Asda and Morrisons – which were the top four in market share. However, in recent years, Aldi has overtaken Morrisons and moved into fourth place in terms of market share in the UK.
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