The question that any investor should ask before buying a share in a British food retailer is: “Should I invest in this industry?” It is an important question because the food retail sector may be large and competitive, but it is hardly a licence to print money.
The Big Four grocers appear to have fairly juicy profits but these are down to large sales bases. Last year Tesco generated a pre-tax profit of £1.3 billion, but off revenue of £57.5 billion. Wm Morrison’s profits came in at £380million, off sales of £17.3 billion. And, until recently, these profits were in decline too. About eight years ago Tesco and Morrisons were reporting far higher underlying profits: £3.4 billion and £760 million respectively.
The situation is similar