It is not really a surprise that, in the midst of so much negative news, the release today of data showing that UK supermarkets have had a record month for sales seems out of touch.
Panic buying has hurt consumers (at least, the ones that didn’t manage to buy 100 toilet rolls), but it has meant an increase in sales for supermarkets. As an investor, it is with considering which supermarkets may now make good investments. I think Sainsbury (LSE: SBRY) could be one such share.
The data
Market data provider Kantar said today that overall supermarket sales were up more than 20% in March. Coronavirus-driven panic buying led to an additional £1.9bn in spending in the month. In comparison, February saw an increase in sales of 1.4%.
The data shows that frozen food saw particular increases, up 84% as people hoarded food. Alcohol sales jumped 67% after UK pubs closed their doors.
Though these statistics impact all the supermarkets, Kantar said that Sainsbury was a particular winner, seeing sales increase 22.4% over the four weeks. It attributed this mainly to the company’s strong position in London and the South East, where the coronavirus (and panic buying) has been hitting hardest.
Short-term gains or long-term benefit?
Of course this bump in sales looks likely to be short lived. It may be enough to impact a company’s quarterly results, and perhaps even the full-year numbers, for the better, but it isn’t a fundamental shift in consumer demand.
Despite this, I think Sainsbury is in a particularly strong position to benefit going forward. Talk now suggests the lockdown could go on for six months or more, meaning online shopping for essentials will be the new norm. Sainsbury has always had a good online presence in terms of high street supermarkets and is in prime position to take advantage.
In addition, there will be a large number of Sainsbury customers who previously did their shopping in stores, who are now forced to move online. It is only natural they will stick with the brand they know. Tesco is likely to see a similar benefit of course, but Sainsbury’s strong delivery platform offers it an advantage.
Investment case
With this in mind, there are a few other aspect to consider for Sainsbury. First, the market is panicking. In times of panic, strong companies get oversold. While many businesses will struggle through this scare and lockdown, supermarkets selling essentials will not.
The second point worth considering is its dividend – at the current price Sainsbury shares are yielding a nice 5.3%. Again, unlike many companies that will be forced to cut pack expenditure, supermarkets are set to benefit from the lower costs of staff in store and the extra revenue of online sales.
This trend moving online has been seen for some time of course, but with lockdown set to continue, I think Sainsbury is perfectly placed to benefit.