Tesco and Sainsbury’s shares set to rise as UK grocery sales surge

• Tesco and Sainsbury’s shares likely to rise amid increase in sales due to tougher Covid-19 rules
• British shoppers avoid stockpiling, alleviating pressure on UK supermarkets and supply chains
• Shares in Tesco and Sainsbury’s rebound 5% in October so far

Tesco and Sainsbury's could see their share prices continue to rise throughout October as British shoppers buy up groceries to bunker down this winter amid tighter coronavirus restrictions throughout the UK aimed at curbing the spread of the virus.

Sales increased by 10.6% year-on-year in the four weeks to 4 October as people look to consumer more food and drink at home due to the UK government imposing a new three-tier Covid-19 lockdown system on Monday, according to research by retail consultancy firm Kantar.

Thankfully, for UK supermarkets, research showed ‘limited evidence’ of shoppers stockpiling goods, which caused major supply chain issues during the first wave of infections in mid-March.

Kantar noted that alcohol sales were likely to generate £261 million more for British supermarkets in October than in the same month last year due to pubs, bars and restaurants all subject to a 10pm curfew.

Tesco and Sainsbury’s shares have climbed more than 5% in October, with the pair trading at 222p and 201p, respectively at the time of publication. Both supermarket chains are down 13% year-to-date.

Grocery sales bounce back after Help Out to Eat Out scheme ends

Approximately £155 million was wiped off UK grocery sales in August due to people taking advantage of the government’s Eat Out to Help Out scheme aimed at supporting restaurants amid the coronavirus pandemic, according to earlier research carried out by Kantar.

‘Diners' confidence built throughout the month, and footfall increased during each week of the scheme, culminating in the final bank holiday Monday, when dining out accounted for a two and half time's greater share of consumer spend that the pre-Covid average,’ Fraser McKevitt, head of retail and consumer research at Kantar, said

‘Fewer meals eaten at home meant consumers spent £155m less in supermarkets in the four weeks to 6 September compared with July,’ he added.

Tesco raises dividend despite fall in H1 profit

Despite reporting a drop in profit due to Covid-19 related costs and a loss in its banking unit offsetting rising grocery sales, Tesco’s management opted to increase the dividend, pleasing investors in the process.

‘Throughout the Covid-19 crisis, we have been guided by four key priorities: providing food for all, safety for everyone, supporting our colleagues and supporting our communities, Tesco said in half year (H1) results, published earlier this month.

‘As a result, our 440,000 colleagues have been able to make a significant and lasting contribution towards keeping their nations fed,’ the company added. ‘At the same time, we have invested in value for customers and continued to make strategic progress as the business moves beyond the turnaround.’

Group sales rose 6.6% to £26.7 billion, while operating profit fell 4.5% to £1 billion. Tesco, however, raised its interim dividend by 20% from 2.65p per share to 3.20p.

Sainsbury’s will unveil their own H1 earnings on 5 November.

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