Food and drink shares to tuck into as Christmas looms
In 40 days’ time, people will be sitting down for their Christmas dinner in joyous celebration.
For some, though, it may serve as a reminder that backing food and drink companies is a classic defensive investment strategy.
When times are tough, people still need to eat – but maybe also have the odd drink and be merry.
News this week heightened the attraction of such a game plan. Sir Dave Lewis, the man who rescued Tesco from disaster a decade ago, has been appointed to the top job at Diageo – the troubled £40billion Guinness and Johnnie Walker alcohol conglomerate.
This would be a tonic (with or without Gordon’s gin or Smirnoff vodka) for Diageo’s despondent shareholders, but the spectre at the feast is the Budget in 11 days’ time, with rumours that Chancellor Rachel Reeves will again raise taxes on alcohol.
Serving up a feast: When times are tough, people still need to eat – but maybe also have the odd drink and be merry
‘Shopper apprehension’ ahead of Reeves’ speech has already caused supermarket sales to slow in recent weeks.
Supermarkets, which were hit by employer National Insurance rises and other tax blows in last year’s Budget, may be calling for a ‘pro-jobs, pro-growth’ statement that spares the retail trade. Will the Chancellor listen? We will not know until November 26, despite the speculation.
But if you are looking for short or long-term diversification, the £76billion UK wine and spirits sector is an inviting prospect – particularly if you are re-positioning your portfolio to gain more exposure to British stocks.
The FTSE 100 reached a record 9,808 this week before falling yesterday amid Budget jitters.
Yes, apprehension may surround the impact of the Budget, but there still are reasons to be cheerful about UK plc.
Food and drink might be seen as a safe haven, but hazards lurk. Sales at private equity-owned Asda dropped by 6 per cent over the past quarter, indicating that discounts alone are no longer sufficient to entice even the cash-strapped.
Alexandra Jackson, manager of the Rathbones UK Opportunities fund, says: ‘This is a sector defined by its razor-thin margins, operational complexity, intense competition and volatile consumer trends.’
The latest include the ‘sober curious’ movement among members of Gen Z, the target clientele for Diageo’s Casamigos and other tequilas.
But supermarkets are the beneficiaries of another consumer behaviour shift, dubbed ‘staying-in is the new going out’.
In response to the expense of restaurant food, households are opting for supermarkets’ premium ready meals. Diageo should be able to supply the accompanying wines.
Figures from analytics group NIQ highlight the appetite for premium private label dining.
Sales of Marks & Spencer’s ranges are not only bounding ahead in its own stores, but also through its venture with Ocado.
To the chagrin of investors, including myself, M&S shares are down this year owing to the cyber attack that paralysed its operations in the spring.
Yet analysts rate its shares, which stand at 353.7p, a ‘buy’ based on the view that the British will want to spoil themselves this Christmas – and beyond.
Tesco
Britain’s number one grocer controls 28.3 per cent of the market.
The aim is to achieve a 30 per cent share by offering more value to customers who might otherwise abscond to the German discounters Aldi and Lidl, and by appealing to the more affluent through its Finest premium label range.
Tesco’s buoyant state contrasts markedly with its predicament in 2014 at the height of the accounting crisis that had engulfed the company. Luckily, Lewis arrived to save the day.
Ken Murphy, Lewis’s successor, is also seen as a class act.
Jackson says that Murphy’s adroit capital allocation decisions, which reflect ‘a deep understanding of what drives long-term performance’, are the reason why Tesco is the cornerstone of her fund.
At 438.4p, Tesco shares are 18.5 per cent higher than at the start of the year, although they are still below the 606p peak in 2007.
No analyst forecasts a return to such heights, but they do rate the shares, which offer a 3 per cent dividend yield, a ‘buy’.
I took a tiny stake in Tesco in February 2024, when the shares were 285p.
I was following my own advice in this column, partly spurred by purchases of pieces of Tesco F&F clothing items that people assumed were designer.
I am not selling.
Sainsbury’s
Sainsbury’s, which holds second place in the UK supermarket league with 15.3 per cent share, has long been in Tesco’s shadow.
But analysts sense that Sainsbury’s may be stepping more into the limelight following a better-than-expected first-half performance.
Sainsbury’s is…
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