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City: Faith in food

Jeremy Warner
Saturday 20 November 1993 19:02 EST
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Calling the bottom is always a dangerous thing, but here goes anyway. In a year when the stock market boomed, the food retailing sector bombed. Saturation, the arrival of foreign discount retailers, price wars - there seems no let- up in the bad news, and share prices have fallen dramatically. Has the correction been overdone? I think so.

After a decade of ever-widening gross margins, the leading supermarket chains face a prolonged period of pressure, but that hardly spells disaster. At Sainsbury, the average gross margin is still higher than last year, despite the recent price-cutting initiative.

Last week, a big line of Tesco shares went through the market to be picked up by Phillips & Drew Fund Management. Investors hope its show of faith will mark the bottom. Unexpectedly bullish news from Kwik Save when it announces final profits this week may further bolster sentiment.

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