To understand more about what has happened to the UK supermarket industry in recent years let us look first at the financial environment within which these organisations conduct their business. What makes a beta rise is when a share price is consistently more volatile than the market as a whole. One-off quantum shifts do not make betas rise sharply. So, supermarket shares are now still low volatility stocks albeit from a lower share price position. Investors took this to be a realignment of medium to longer term profit expectations of the leading supermarkets and so priced their shares down accordingly. The growing market share of relative new entrants like Lidl and Aldi, as well as economy stores like Poundland, impacted on the market leaders.Īdditionally, changes to shopping habits, which are seeing people move away from doing their entire weekly shop in one supermarket, are also hitting the market leaders. In 2014, though, a major shift occurred to the expected profits of Sainsbury’s, Tesco and Morrisons due, primarily, to changes to the structure of the (food) supermarket industry in the UK. They remain stocks which normally experience less volatility than the market as whole. The probable answer is that 2014 proved to be the ‘exception that proved the rule’ for supermarket stocks. So had supermarkets suddenly become high-risk stocks? Were their betas wrong?
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