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Despite the challenges posed by Brexit, the UK economy is still fundamentally strong and can cope whatever the outcome, a leading retail market analyst has claimed.
Clive Black, the head of research at investment group Shore Capital, was speaking at an agri food event organised by Deloitte at Hillsborough Castle last week.
He said his company was one of the few to predict that the initial vote to leave the EU would have little short-term impact, and he still believes the economy is resilient enough to get through the next few years.
“The UK economy will cope with Brexit, but there are uncertainties ahead. Perhaps if there was more certainty the economy would be booming along right now,” he suggested.
One of the main issues is the on-going position of sterling against other major currencies. If there is a withdrawal agreement between the UK and EU, he believes sterling could appreciate by 10-15% overnight. But if Brexit remains a dysfunctional process, he suggested that £1 could go below €1 over the next six months.
Food retail
The majority of Black’s presentation looked at future trends in food retailing. He believes discount retailers such as Lidl and Aldi might have reached their peak in Britain and Ireland, given that larger retailers such as Tesco now understand the discount retail model.
In the Republic of Ireland, the latest sales data shows Tesco growing twice as fast as Lidl and Aldi, while in England last week Tesco launched a new discount chain called Jack’s, that promises to be the “cheapest in town”.
Online
The other potential threat facing the established retailers has been the rise of online, with some predicting that it could lead to the demise of supermarket stores. However, Black is convinced that is not happening any time soon.
“Online is really difficult to do, so the future of supermarkets is quite bright,” he said.
Merger
However, he also expressed significant concern about the proposed merger between Sainsbury’s and Asda, announced in early May.
If it goes ahead, it will make the newly merged business the largest retailer in the UK, with 2,800 stores and over 30% market share.
The main issue is future competition in the market, especially with multiple examples of Asda and Sainsbury’s stores located in close proximity in the same town.
The situation in NI is also relevant, suggested Black, as the new business would have about 35% market share here. Combine that with the 35% share held by Tesco, it would mean that only two retailers hold 70% of the NI retail market.
Last week the UK Competition and Markets Authority (CMA) confirmed it would be undertaking an in-depth review into the merger.
“The merger could get cleared, but what is critical is the remedies and how many stores they might be forced to sell by the CMA.
“If it is 250 stores (as some have suggested) the deal falls apart,” suggested Black.
He also pointed out that someone needs to want to take these stores on, and with Marks and Spencer and Waitrose having various troubles of their own, it leaves Morrisons as the possible king maker.
“They might even have to pay Morrisons to get rid of those stores,” suggested Black. At present, Morrisons does not operate in NI.
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