Food and soap in high demand

The pandemic has caused a huge spike in purchases of groceries and cleaning products

April 8, 2020

March 2020 was the biggest month of grocery sales ever recorded in the UK, as many of us stocked up on essential goods. And that surge in demand has been felt all the way along the supply chain – from the supermarkets through to the food producers.

It can be no coincidence that shares in Cranswick (CWK) have been relatively resilient over the year to date – broadly flat, against the FTSE All-Share’s fall of more than a quarter. The group should, ostensibly, benefit from heightened shopping activity – helped by the fact that it specialises in staple items such as sausages, bacon and chicken. In this case, it is somewhat reassuring that Cranswick has not updated on trading since its third-quarter results in January.

Meanwhile, shares in peer Hilton Food (HFG) have fallen by just over a tenth since the start of 2020 – still considerably better than the contraction endured by the benchmark index. In a recent announcement, the group – whose core product range includes roasting joints, steaks, chops and minces – said that its outlook remained positive. Its facilities remain fully operational, and it has established business continuity and flexible buy models and supply options “which may be tested during this period as we continue to play our part in feeding the nation”.

Results for 2019 were slightly ahead of management’s expectations, and Hilton cited a robust financial position – with year-end net debt of £87m (net of cash of £110m), plus further undrawn facilities. That should offer some flexibility, if the group does encounter volatility or disruption – a scenario that cannot be discounted for any company in the current climate.

As far as both Cranswick and Hilton are concerned, we must concede that it is unlikely people will continue buying at the same pace – or in the same volumes – as they have been during the coronavirus crisis. Social distancing measures will eventually ease. Restaurants will reopen. But broker Peel Hunt reckons that a renewed interest in eating at home, as a family, will sustain.

ABF: a tale of two industries

Elsewhere on the London market, Associated British Foods (ABF) offers up a tale of two industries. Primark – the group’s high-street retail wing, which constituted 49 per cent of revenues last year – has closed all its stores, representing a loss of £650m in net sales per month. But its other, food-related businesses – sugar, grocery, ingredients and agriculture – have not endured a material impact from Covid-19.

Thanks to cost-saving steps, ABF expects to recover about half of Primark’s operating expenses. And various directors have taken sizeable pay cuts. But the group expects full-year earnings to be much lower than previously envisaged overall. For now, available liquidity of £1.7bn gives a decent amount of room for manoeuvre.

Wash your hands: a message that could stick

Food is not the only product being swept from the shelves. Many of us will have used far more soap in the past few weeks than ever before, in a bid to stem the spread of infection. One reason, perhaps, that PZ Cussons (PZC) – which makes the UK’s number-one hand-wash, Carex – has not seen fit to revise or lower its guidance in recent weeks.

We should of course highlight that PZ operates in emerging markets, for whom the economic impact of the pandemic could be especially bad. The group may yet change its outlook, and/or take remedial actions. In the longer term, though, any lasting effects of an intensified focus on cleaning and hygiene should be a positive for PZ and peers including Reckitt Benckiser (RB).

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