This podcast isn’t personal advice. If you’re not sure what’s right for you, seek advice. Tax rules can change and benefits depend on personal circumstances.
This podcast isn’t personal advice. If you’re not sure what’s right for you, seek advice. Investments rise and fall in value, so investors could make a loss.
Full podcast episode transcript
Susannah Streeter: Hello and welcome to Switch Your Money On from Hargreaves Lansdown. I’m Susannah Streeter – Head of Money and Markets.
Sarah Coles: And I’m Sarah Coles – Head of Personal Finance – and it’s great to have you back again after your break, Susannah.
Susannah Streeter: It’s good to be back, although it is a bit of an adjustment. It’s not just the weather, it’s also swapping lazy days browsing in bakeries and delis for the big shop at the supermarkets.
Sarah Coles: And, of course, you’ve got teenagers in the house – like I do – so you’re probably back every couple of days after they’ve somehow eaten the entire contents of the fridge.
Susannah Streeter: Yes – I basically live at the supermarket these days – and I’ve taken to hiding my favourite snacks all over the house in fear of the midnight teen-raids, but I’m not alone. We spent more than £217bn in the supermarkets last year – probably not all on hungry boys though – but, nevertheless, the amount we’re spending is rising. It’s expected to be over £241bn by 2028. And the impact of the sector reaches right across the economy.
It's not just the supermarkets themselves, but there’s a wider impact on retail behaviour and, of course, the whole of the supply chain. So, we’ll be covering it all in an episode we’re calling ‘The Supermarket Sweep.’
Sarah Coles: Yes – we’ll go back up the supply chain and talk to Ed Horton, who runs a mixed farming operation of arable and livestock across Gloucestershire, Wiltshire, Oxfordshire, and Hampshire. He’s been taking some interesting steps in recent years to deal with a host of challenges which we’ll be delving into later.
Ed’s with us now – so it’s been a tough few years, hasn’t it?
Ed Horton: It has indeed been a tough few years from global commodity markets to changing weather – a Russian invasion of one of the biggest food-producing nations in Europe. We have had to adapt quite fast to a very rapidly changing marketplace.
Susannah Streeter: Thanks, Ed – looking forward to hearing from you more a little bit later.
We’ll also explore life for the supermarkets, themselves, and talk to Equity Analyst, Matt Britzman, about some of the most well-known names in the sector. Plus, we’ll speak to Emma Wall – our Head of Investment Analysis and Research – for a fund management perspective.
Sarah Coles: So, let’s start with what’s been an incredibly eventful few years for the industry. Since the onset of the pandemic, it’s been a torrid time for the supermarkets.
During lockdowns – when we were only really allowed to the supermarket and the park – demand boomed, and the struggle became to get things onto the shelves fast enough before they were snapped up.
Supermarkets couldn’t take full advantage of the growth in demand because the supply just wasn’t there. Towards the end of 2021 – thanks to a combination of everything from Brexit-related issues and driver shortages to supply chains snarled up by manufacturing staff being unable to work or by international travel restrictions – one in six shoppers said they’d been unable to buy the things they wanted.
Susannah Streeter: Then, with the onset of the cost-of-living crisis, prices took off – the dynamic changed again, and cost-cutting was a priority. Food-price inflation peaked at 19.2% in March 2023 – it’s highest in 45 years – and was running red hot throughout the crisis.
Technically, supermarkets are winners even in the toughest of times. Demand is inelastic because we have to eat – so, even when we’re cutting everything out of our budgets, we still fill our trolleys.
In reality, any supermarket offers a massive range – from cut-price budget items to premium brands. It means shoppers have been flexing what they buy and trading down.
Sarah Coles: We can see this from what shoppers stopped buying. In 2023 – when inflation peaked – unit sales were down 3.4%, as shoppers facing runaway costs were forced to leave things out of shopping baskets altogether. It hit essentials – so sales of bread dropped around 5% – but it hit nice-to-haves even harder. Champagne sales – as an extreme example – fell 13.5%.
We can also see the impact of trading down from the rise of the supermarket own brands – with sales up almost 12% in 2023 – excluding the discounters. Just after the inflationary peak in April 2023, own label made up around two-thirds of grocery sales by volume. There was also a 14% increase in volume sales of the cheapest own brands, which are the ‘Value’ products.
Susannah Streeter: Of course, the discounters have brought cost-cutting pressures of their own. Privately-owned Aldi and Lidl have been in the UK market since the 1990s, but they’ve taken off in recent years, and now have a combined market share of 18.1% - up from 14% in 2019 and roughly double their level when Kantar started including them in its research in 2014. And you can see evidence of their fight back in price-matching stickers on key products among the traditional supermarkets.
Sarah Coles: The HL Savings and Resilience Barometer shows that cost-cutting has been a triumph for shoppers who have less disposable income but have slashed their costs so much, they’re actually more financially resilient.
However, it’s put supermarkets under pressure, especially given they operate on famously tight margins, and rely on volume sales to make their business models work. It means they don’t have as much room to cut costs to tempt shoppers, and they face real challenges if they don’t get the volumes they need.
Susannah Streeter: Matt’s gonna take us through some of the biggest names shortly, but it’s also worth mentioning Morrisons, which had market share ahead of Aldi as recently as summer 2021, but has now dropped out of the ‘Big 4,’ and is teetering on the edge of falling below Lidl too.
Asda’s been feeling the pinch. Like-for-like sales fell 2.1% in the first half of the year, and Chairman, Lord Rose, has said he’s slightly embarrassed by the position the company finds itself in.
Sarah Coles: This period has really been challenging – and supermarkets have been hunting for margins. One interesting change during this time has been their approach to selling fuel. They’re still among the cheapest places to buy fuel, but far less so since the onset of the pandemic. The Competition and Markets Authority investigation last year found that margins had increased by 6p per litre between 2019 and 2022. Morrisons’ targeted fuel margin for 2023 had doubled since 2019 and Asda’s had trebled. Sainsbury’s and Tesco followed their lead and increased prices. There’s every chance they were boosting margins in one area that had more freedom in order to offset the squeezing on margins in store.
Susannah Streeter: Now that inflation is being outstripped by wage growth, things are changing again – and supermarkets need to be ready. The focus needs to be on those premium ranges as well as the cheaper items. One trend Mintel has suggested is growth and fancy meals at home for special occasions – with premium ranges – so supermarkets need to offer the top-end products that make this work.
Looking ahead for the supermarkets, there are some other trends to watch. There’s the role of loyalty cards, which are now increasingly used to secure discounts in store, arming the supermarkets with even more valuable data.
Sarah Coles: There’ve been concerns raised about whether the tactical use of loyalty cards to lure more shoppers through the doors amid such high competition in the sector was confusing – but, so far, an initial investigation by the CMA has found ‘No widespread evidence’ that customers were being misled.
The watchdog’s been looking at whether loyalty pricing – like Tesco’s Clubcard prices and Sainsbury’s Nectar prices – were indeed genuine promotions and as good a deal as presented.
It’s now commissioned a consumer survey to understand the impact of loyalty prices on shoppers, which it said would form a key part of its next report in November.
Susannah Streeter: Then there’s the question of delivery and ‘Click and Collect.’ The pandemic encouraged huge numbers of people to try new forms of shopping, but the volumes involved make this an expensive undertaking for supermarkets, and they face the question of whether this is a long-term shift.
Sainsbury’s recently revealed that almost all of its shoppers who switched to shopping online during the pandemic have gone back to shopping in store. Online sales had been above 20% at the height of the pandemic, but are now back to around 13%. So, clearly, lots of tricky trends to navigate.
Sarah Coles: Given all this ongoing change, it’s worth looking at how the big names are faring. But, before we bring Matt in – to go through some of the biggest names – I just want to mention the survey that we’ve got in the Show Notes.
So, Matt – we heard from Susannah about how lots of its customers have gone back to shopping in store. What else is happening at Sainsbury’s?
Matt Britzman: Hi, Sarah. Sainsbury’s is in a bit of a balancing act right now. In its first quarter, like-for-like sales, excluding fuel, were up by 2.7%. Now, that’s a far cry from the nearly 10% growth it saw last year, but we’ve got to remember that was during a period of intense inflation. What’s key here is that it’s managed to keep volumes moving up, which helps counterbalance cooling inflation.
Susannah Streeter: It sounds like Sainsbury’s is making some smart moves, but what about its broader strategy, particularly in the face of competition?
Matt Britzman: What’s been working for Sainsbury’s is its aggressive push on value. It’s been hammering home initiatives like Nectar prices and Aldi price-matches, and it’s paid off by keeping customers in the store. But, as with anything, offering value doesn’t come cheap. Its profits aren’t exactly skyrocketing, and Sainsbury’s sits in that middle-market sweet spot, where it’s particularly vulnerable at tougher times.
But there’s more to Sainsbury’s strategy beyond just pricing. It’s been investing in innovation and improving its product range to keep up with consumer trends. As an example, there’s been a focus on expanding its range of own-brand products, which are increasingly popular among cost-conscious shoppers. This move not only helps improve margins, but also strengthens customer loyalty. The challenge is balancing these strategic initiatives with the need to stay competitive on price, especially with the discounters continuing to gain ground.
Sarah Coles: Of course, there’s Argos in the mix too, isn’t there?
Matt Britzman: Yeah – Sainsbury’s exposure to general merchandise through Argos is a bit of a double-edged sword. With consumer electronics demand down, Argos has been more of a drag than a driver lately. It’s doing a good job with cost savings, and the balance sheet looks a lot healthier, but the general merchandise sector is notoriously cyclical. It’s something to keep a close eye on as we move through the year.
Susannah Streeter: It sounds as though Sainsbury’s is having to fight on all fronts. I think also you’ve lined up Ocado next – a business with a bit of a tech twist?
Matt Britzman: Yeah, that’s right. Ocado is an interesting case of part-grocer/part-tech business. Just starting with performance, it’s been a bit of a mixed bag. On the one hand, first-half revenue was up 12.6% – hitting £1.5bn – which was solid growth across the board. The Technology Solutions business saw a nearly 22% jump – this is the most interesting part of the business, where Ocado helps set its customers up with robotic systems in giant fulfilment centres.
Sarah Coles: Ocado’s always been known for its innovation – but, with the economic challenges, is that enough to keep it ahead?
Matt Britzman: That’s the big question. Ocado’s future hinges heavily on finding customers willing to sign expensive contracts to build out these advanced warehouses. The problem is , some of its retail partners are tapping the brakes on investing in new capabilities, and that’s led to a more cautious growth expectation. It’s a tricky spot because, while the technology is in demand, the current economic environment has some retailers thinking twice before committing to big investment products.
Now, don’t get me wrong – these technologies have the potential to revolutionise the retail sector by increasing efficiency and reducing costs for retailers. But the challenge remains in convincing potential partners to invest in these technologies, especially during uncertain economic times. Ocado needs to prove that its solutions can deliver a strong return on investment – and that’s where the pressure is really on.
Susannah Streeter: Of course, it’s not just a technology company, is it? There’s also the retail side.
Matt Britzman: Yes, of course – and, on the retail side, Ocado’s partnership with M&S has been fruitful. Customer numbers are up to over a million now, which is impressive – but growth has been driven by higher volumes rather than price increases, and that’s putting a bit of a squeeze on margins. Plus, there’s the ongoing legal spat with M&S over a performance payment that’s been withheld. It’s not a major blow, but it adds a layer of complexity to an already challenging landscape.
Sarah Coles: Ocado certainly seems to be riding the highs and lows of innovation. But, finally, let’s look at Tesco – the heavyweight in the room. How is it handling the pressure?
Matt Britzman: Tesco’s definitely the big player here, and it’s been managing quite well. Last year, it saw sales climb 7.2% to £61.5bn – with volumes up enough to counter the easing inflation. Its underlying operating profit rose by nearly 13% to £2.8bn, which was pretty impressive.
Susannah Streeter: Tesco’s scale is a huge advantage, but how is it leveraging that in the current market?
Matt Britzman: Tesco’s scale really does give it an edge. It’s been able to keep prices competitive – and that’s crucial in today’s market. It’s expanded its Tesco Finest range – which has been a smart move – attracting customers who might otherwise shop at more premium supermarkets. It’s a trend that could stick around as consumers look to treat themselves at home, rather than dining out.
But Tesco’s not resting on its laurels. Beyond the groceries, its wholesaler, Booker, is performing well too, and has made some strategic cuts in non-essential areas like ‘Clothing’ and ‘Home’ to focus on higher-margin categories. This has allowed Tesco to stay nimble in a tough retail environment. The company is also investing in digital and online services, which have seen strong growth, particularly during the pandemic. These investments are paying off and helping Tesco maintain its leadership position in the a highly competitive market.
And, let’s not forget – Tesco’s also set to deliver a good dividend yield backed up by strong free cashflow that gives it the firepower to continue rewarding shareholders while investing in growth opportunities. Of course, no returns are guaranteed and, like its peers, Tesco’s is keeping a close eye on the competition, particularly from discounters, which continue to pose a challenge.
I should also note that the Non-Executive Chair of Hargreaves Lansdown Plc is also a Non-Executive Director of Tesco Plc.
Susannah Streeter: Thanks, Matt – there is plenty to chew over in the sector, and it will be interesting to see how it digests some of the changes on the way.
Sarah Coles: Of course, it’s not just the supermarkets dealing with all this change – it also has a big impact on their suppliers. So, this seems like a good time to bring in Ed Horton, who works at the start of the supply chain, providing crops to manufacturers and the supermarkets.
So, Ed, tell me more about your business – who do you supply to?
Ed Horton: We are a mixed farming operation – we grown arable crops as well as producing livestock. We have direct links with the supply of malting barley to Heineken – milling oats to Jordans Cereals. We also supply some quite niche crops to a local flour mill – things like spelt and emmer – ancient grains. We supply beef to Morrisons – there is pork going to M&S. Some really small niche crops for seed producers – very weird and wonderful things: a crop called phacelia, for instance, that is used in environmental mixtures – for areas of ground that are put aside for wildlife.
Susannah Streeter: We often talk about the benefits of diversification – do you think the very fact that you have got so many different customers has helped you weather the storms over the past few years?
Ed Horton: It has. Having a more diverse range of people to sell to does mean that I get to have the same tough conversations with different people – and sometimes the outcomes are very different. For instance, working with Heineken – as a global company, they are more aware than some others of the issues of global supply chains and increasing input prices across the world. Whereas, if I maybe have the same conversation with our local flour miller, the issues that we’re facing are somewhat more localised and different. It is the fact that maybe his contract with M&S or Waitrose has been tweaked slightly – and, therefore, we have to adapt on a slightly smaller scale to a more local input.
Diversity has helped us weather the storm a little bit, but also does mean that I have an awful lot more legwork to do to keep those customers happy – and to be able to supply the commodities that they desire.
Sarah Coles: We’ve talked about how difficult things have been recently. So, if we can go right back to the pandemic, can you just talk a little bit about how you were affected?
Ed Horton: During the pandemic, it was a very strange time for us. As an operation – and as an industry – we were not affected by working from home! We actually have to be out and about on the land – and looking after animals all day. So, from the pandemic point of view, it was actually rather nice, but it did help keep us all a little bit more sane – we could actually see other human beings and be outside.
There was a short-term kneejerk reaction to the fact that there was a shortage of food on shelves. That was not because there was a shortage of food, full stop – it was an issue of supply chain management.
That helped focus people’s minds on how food is produced and grown and their access to it. So, the pandemic – from our marketing point of view – actually slightly benefitted us in the long-term – in the fact that I think more people at home, thinking, ‘What was the one thing you could do for about eight months of the year?’ You could go to a supermarket without any guilt – you could go and buy food – and I think it focused some people’s minds more on what they were buying, and also what was available. Suddenly, people being used to finding an avocado – or some raspberries from Peru – found they weren’t there and, actually, there was seasonal British veg. So, I think the pandemic focused people’s minds a little bit more on the food that could be produced here.
Susannah Streeter: Looking on from the pandemic – of course, then we had the cost-of-living crisis – did that have more of an impact for businesses like yours? What’s it been like?
Ed Horton: Smaller-scale and niche crops that we provide – some of the heritage grains, for instance. That is very much a premium market – and that market has been squeezed along with the organic market. A bag of organic bread flour is about 12% to 15% more expensive than a bag of conventional bread flour.
When it comes to big commercial bakeries – and what they’re buying – and what they’re being able to sell stuff for – they have looked at it, and there has been a slowdown of the organic and niche market. Conversely, people do need to eat every day. There is a bigger split now between the people who can afford – and definitely will happily spend more money to buy the diet that they really want – versus the choice of, ‘I have a budget this week and, therefore, that budget is what I have to spend’ – well, certain things now have to come out of that budget.
Sarah Coles: At the same time, you were dealing with rising input prices as well. So, how did that affect you?
Ed Horton: With the Russian invasion of Ukraine, obviously there was a huge knock-on effect on the global markets of every commodity, but I think grain was one of the biggest-affected global markets. So, we saw a stratospheric rise in the price of wheat. Along with that, comes then with the huge rise in input prices – so Russia is a huge exporter of natural gas. Natural gas is the main component of how artificial fertilisers are created. Russia suddenly had a lot of issues with natural gas.
So, we were seeing grain prices doubling in a record space of time. We also saw our input prices
more than double. A tonne of ammonium nitrate – a fairly bog standard fertiliser - pre the invasion, we had bought it at about £325 to £330 a tonne. Six weeks after the invasion of Ukraine, you were paying well over £1,000 a tonne.
Susannah Streeter: So, a huge amount of volatility – and now the weather is proving pretty unpredictable, isn’t it? What are the challenges for you with changing weather patterns?
Ed Horton: Yes – the weather is the other big driver in my life! It controls everything we do – our ability to do our job – and the quality of the crops that we produce. Between October and March, we had the wettest six months ever recorded in this country. That followed what was a predominantly wet summer. So, nationally, last autumn, wheat planting is down somewhere around 10% to 12% – that is one of the biggest drops in wheat area we’ve ever seen in the country – in the ability to plant crops. That has had an impact on domestic supply.
We may well have a short domestic supply of milling wheat this year. Conversely, that knock-on effect from that poor planting in the autumn – and the poor survival rate over winter – we’ve had an incredibly dull June. Those long days of sunshine hours in June is what is key to building the quality of the grain, pre-harvest – so that allows the grains to swell and fill properly with carbohydrates and pack themselves with protein. Our milling wheat is low in protein – protein content is key into being able to produce dough that stretches – therefore rise when it’s baked into a loaf.
These issues are being replicated across Northern Europe. Canada have had a spectacular harvest and, currently, it’s cheaper to buy high-protein wheat from Canada – put it on a boat and float it across the Atlantic – than it is to buy it from us here, domestically!
Sarah Coles: Has Brexit had an impact on your business as well?
Ed Horton: Brexit has had an impact on us. My father and I were having a conversation – I was looking at coming back to the family farming business. Brexit was on the horizon at this stage. So, ‘What happens if we leave Europe?’ We lose our access to the Common Agricultural Policy – which, at that stage, was paying what was called ‘BPS’ – the Basic Farm Payment – where we got paid a set amount per year for the amount of land we farmed. So, every year, we knew we had an income top-up that kept us effectively profitable.
I went away and looked at that problem, and came up with the solution that we have now – which is removal of outside inputs, looking at niche cropping – looking at how we can focus long-term on soil health and biodiversity, carbon capture, etc. Working directly with consumers to shorten that food chain, we were going to open ourselves up to the world. So, Brexit was the big factor in that.
We were going to lose access to our biggest market, tariff-free – we were going to open ourselves up to the world. We have, so far – looking at what previous governments have signed as trade deals have been appalled by the fact that they have sailed British farming quite spectacularly down the river and government, post-Brexit – ‘Let’s cut all the red tape – let’s have a free-for-all’ has opened us up to cheap imports, which are drastically going to affect our ability, as an industry, to keep producing.
Susannah Streeter: Seems like you’re shape-shifting all the time to stay ahead of all these changes.
Within all of this, how does the power of the supermarkets matter to you?
Ed Horton: The quiet power of the supermarket over the past 50 years is quite spectacular – when you look at the impact it has had on how people buy their food, what they eat, and how much they spend on it. But they are a necessary evil – they are the way in which people buy food these days – and no-one is going to change how they buy their food.
They’ve had a huge – in some respects – negative impact – but also they are the key to being able to put food in front of people.
Supermarkets sell the vast majority of food in this country to the vast majority of consumers. Us, as farmers, need to stop going, ‘Oh, woe is us – supermarkets are ruining us’ – is actually turn around and go, ‘Right, supermarkets – you’re the ones with the key to this – let’s work together and see if we can find a sustainable solution to put British produce in front of people, seasonally, at affordable prices for the consumer, but also at a price that actually still allows the producer to stay in business.’
Susannah Streeter: Thank you for joining us on the podcast – It’s been really fascinating and illuminating.
Ed Horton: Thank you for having me.
Sarah Coles: Of course, the impact of supermarkets is felt far and wide – including on funds. So, with that in mind, let’s bring in Emma Wall – our Head of Investment Research and Analysis – who’s been discussing the sector in detail with James Harries of Troy Asset Management.
Emma Wall: Hi, James.
James Harries: Hi, Emma.
Emma Wall: We’re talking today about supermarkets, food retailers, food producers – I know you invest in a few of those. I wanted to talk to you about how consumer trends have influenced food retailers and food producers in recent years.
James Harries: There’s been a couple of notable trends. Clearly, one of the most important ones is consumers are increasingly seeking healthier products – and, of course, the producers have responded to that in a number of different ways in terms of the products that they produce – in terms of the underlying ingredients.
There’s also been a notable trend towards premium products – people tend to eat a bit less, but a bit better. So, there have been a number of changes, but these tend to take place over time – and change in consumer preference isn’t new and is something these companies have dealt with for decades.
Emma Wall: And is that the same for developed and emerging markets, or are there different trends in different regions?
James Harries: Well, there are in that sense that, in developing or emerging markets, adoption of these sorts of products is still relatively nascent. So, whereas, in developed markets, you have slower growth – perhaps a bit more innovation – a few more product lines to generate interest. In emerging markets, the small treats that these sorts of companies produce are really only a feature of consumption once you reach a certain level of wealth. Snacking – or consumer foods – or chocolate – or whatever it might be – are beginning to be part of people’s consumption patterns in a way that they weren’t before. So, yeah – the trends are somewhat different.
Emma Wall: What about distribution? How has Ecommerce shaken up distribution for food retailers and food producers?
James Harries: One of the great advantages of these very large high-quality food manufacturers is that they have scale and they have incredibly sophisticated and widespread distribution networks. That’s very valuable – not just because it enables them to get their products to market in a sensible way, but it’s valuable to the food retailers as well – because it means that they can rely on these companies to ensure that they have their product on their shelves. Food retailing is a low-margin, tough business – and, if you’ve got partners who are able to help you be reliable in terms of making sure the stuff is on the shelf when you need it, that can be very valuable.
Now, Ecommerce, of course, is a feature of these industries – it got a big bump in COVID. These tend to be slow, but persistently growing, quite predictable, high-free cashflow, high-margin businesses, but they had a cycle in an industry where the cycle is often quite absent. So, they all had quite a boom as we all sat at home and consumed a lot of these products – and bought a lot of them online – and that’s turned, to a degree, into a little bit of a mini-bust as consumption patterns have reverted – not completely to how they were before, but to more as they were before COVID.
One of the interesting things about it is there was a great deal of concern – at one point – that, of course, if you are accessing these products on the Internet – or on a website – then you’ve effectively got an infinite shelf. You can access a great deal of larger number of items – and that may have been detrimental to the strength of these brands that these large companies have.
In fact, what’s turned out to be the case is that, when you search for a particular brand, it tends to be the large players’ products that come up first – because it’s in the interest of the food retailer to show those that have the highest volume – and brand loyalty, therefore, has actually gone up – so that was a bit of an unexpected bonus.
Emma Wall: Let’s get onto the companies, themselves – which would you like to talk about today?
Emma Wall: Well, we own three companies that are relevant to the conversation we’re having. The first is Pepsi. Pepsi, of course, is known to everybody because of the eponymous company’s soft drink, but actually it’s really a snacking company – the dominant products that they produce are snacks. They are dominant in the US market – and nine times bigger than their nearest competitor – and they have a building, international business – and snacking is very popular. And, as the international business scales at Pepsi, then we think that’ll be margin-enhancing as well.
Emma Wall: How does everything you’ve just said, quite positive, about Pepsi marry with what we started to talk about at the top of the conversation – changing consumer trends? I’m not familiar with the entirety of Pepsi’s portfolio, but I think of them as quite high-sugar, high-salt – not exactly a healthy player.
James Harries: That’s true – but, equally, they always say that, ‘Everything in moderation.’ And the reality is that people quite like to have a snack every now and then – and, as wealth increases – particularly in the developing world – it tends to become part of somebody’s diet in a way that hasn’t been in the past.
It is certainly true these companies have made efforts to reduce the ‘Unhealthiness’ of their products. And so, whilst there is a desire for consumers to be healthier, there is also an ongoing reality that people like to have a snack occasionally – and the consistency and persistency of Pepsi’s growth in products would underscore that.
Emma Wall: What’s the second company you want to talk about?
James Harries: We also own some shares in Nestlé – of course, you’ll know Nestlé is the biggest food company in the world. It has particularly high-quality businesses in coffee, which had quite a boom in COVID – particularly people working from home – they drank more coffee at home – and pet care. People adopted quite a lot of pets in COVID – but also, looking after one’s pet – viewing one’s pet as part of the family – indulging one’s pet is an increasing trend, and Nestlé is really well placed in both of these businesses. And so, once again, we see a company that has enormous breadth and scope – great brand loyalty and distribution power – and is some very attractive categories.
Emma Wall: And the third company in the portfolio?
James Harries: The last one’s Hershey – this is the US chocolate and snacking business.
Hershey’s extraordinary – I don’t know about you, I’ve never been particularly keen on Hershey’s chocolate, but Americans love it. It’s dominant in the American chocolate category – and what that enables it to be, therefore, is have very attractive returns on capital – terrific pricing power – and it’s a very nicely, well-managed business.
They’ve actually been slightly concentrating their efforts in overseas markets – particularly in the UK and Germany, where they see the trends in terms of consumption is similar to the US market – and you put all that together and you have a company that has an ability to price, great brand loyalty, and an amazing market position.
So, once again, it had a very good time during COVID – that somewhat normalised – and we can say that across all three companies – that they had very strong demand over that COVID period. That’s normalised somewhat, which has caused some disruption – particularly ‘cause we’ve seen some inflation recently as well – but I think, overall, these trends should settle down over time, and they’ll return once again to being predictable, high-free-cashflow-growing, dependable companies for our portfolio.
Emma Wall: James – thank you very much.
Susannah Streeter: That was Emma Wall talking to Jamies Harries from Troy Asset Management – and please bear in mind that these are the views of the fund manager and are not individual stock recommendations.
You’re listening to Switch Your Money On from Hargreaves Lansdown – and, before we go, there is time for a quick fact of the week.
So, we’re gonna nip back in time to when the Co-op opened the first self-service supermarket in the UK – just ahead of Tesco later that year – but what year was it? I’ll give you 10 years either way.
For a little bit more context, I should say that the first one was opened in 1916 in the US.
Sarah Coles: I know that we’re quite keen to pick up US trends, so I can’t imagine it was terribly long before we adopted it – so I’m gonna opt for the 1930s.
Susannah Streeter: No – sorry, you’re way off – it’s 1948. In the UK, it appears we waited for working patterns to change after the Second World War, when both men and women were likely to work, leaving less time for shopping.
Sarah Coles: Unless you have teenagers, of course – in which case, it probably counts as my main hobby.
Susannah Streeter: Yes – mine too. I should probably go and stock up on Super Noodles right now.
Well, that’s all from us for this time – but, before we go, we do need to remind you that this was recorded on 19th August 2024 and all information was correct at the time of recording.
Sarah Coles: Nothing in this podcast is personal advice – you should seek advice if you’re not sure what’s right for you. Investments and any income they produce can rise and fall in value, so you could get back less than you invest – and past performance is not a guide to the future.
Susannah Streeter: Yes – this is not advice or a recommendation to buy, sell, or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment.
Sarah Coles: And this hasn’t been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication.
Susannah Streeter: Non-independent research is not subject to FCA rules prohibiting dealing ahead of research. However, HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing.
Sarah Coles: You can see our full non-independent research disclosure on our website for more information. So, all that’s left is for us to thank our guests: Ed, James, Matt, Emma, and our Producer, Elizabeth Hotson.
Susannah Streeter: Thanks very much for listening. We’ll be back again soon – goodbye!