In tough times, investors seek refuge in defensive stocks. In retail that usually means food, but how safe a bet are the big grocers?

It’s true that supermarkets have outperformed their general retail peers massively. Even so, there must be doubt that food can emerge unscathed from the downturn. Everybody has to eat, but how much they spend, and in which shops, are the variables that spell success or disappointment.
The extent of the ongoing supermarket price war and the market share advances made by discounters – notably Aldi – are reminders that nothing can be taken for granted, even when life’s essentials are being retailed.

There’s always some smoke and mirrors in rival grocers’ price claims and promotions, but the tone of the present campaigns indicates that a desperate struggle is going on.

Asda’s 25p pinta, Morrisons’ “price crunch” and Tesco’s trumpeting that it has saved shoppers£620 million since March all show the extent to which shoppers are being driven by price and the extent to which stores – which already place such emphasis on value – must be seen to act.
Although food retailers are thought to be immune to downturns, that’s not the case. As Panmure Gordon’s Philip Dorgan has pointed out, during the last recession volumes turned negative, margins fell and there were asset write-downs.

Consumer purse tightening has coincided with big food price rises. Supermarkets have resisted passing on the bulk of the price rises to shoppers and are increasingly – as with Asda’s milk price cuts – funding promotions themselves.

So, which grocers are most at risk of upset? Dorgan highlights Sainsbury’s and Morrisons. Both are entirely reliant on the UK food market, while Tesco, for instance, has an international spread that should help protect profits.

Food has, so far, proved retail’s safe haven, but may not emerge from the downturn entirely unscathed.

Thanks Gerald

So farewell then, Signet, which is moving its main listing to the US. The retailer is one of few UK groups to have succeeded Stateside, where it now does two thirds of its business.

It was Gerald Ratner who took Signet to the US, before being drummed out after his infamous prawn sandwich gaffe. How ironic that the man blamed for the company’s near collapse also planted the seeds of its greatest success – not that many people at Signet appreciate being reminded.

George MacDonald is deputy editor of Retail Week