Sector Focus 

Grocery's big inflation boost

Grocery's big inflation boost

It’s fair to say retail stocks have been a contrarian play for investors this year. With inflation rising, wages stagnating and household budgets under pressure, it’s been a year of winners and losers in British retail. But one clear trend to emerge from this is a recovery for grocery stocks, many of which suffered badly during the last recession – not to mention the destructive price wars that followed. Inflation, intuitively a bugbear for retailers, has actually done the supermarket sector a favour, ending the deflationary imperative that has undermined high-street margins in recent years. Crucially, this has also put a pause on the advance of the limited assortment discounters (LADs) – including German brands Aldi and Lidl. Britain’s four largest supermarkets – Tesco (TSCO), Asda, Sainsbury’s (SBRY) and Morrisons (MRW) – have all worked hard to put various strategic stumbles behind them and even large-scale acquisitions seem to be back on the agenda. But how well-prepared are these companies to face down the biggest threat of all: the onward march of US online retail giant Amazon (US:AMZ)?

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