Supermarkets: Trolleys at Dawn

As usual, the unintended consequences of legislation demanded by politicians, who have no scientific background, to appease a public ignorant of most things, but certainly compartmentalised in their thinking, come back to bite the government on the arse. The snag is they’re biting everyone else harder, especially the supermarkets, who are in the midst of a civil war.

In the early noughties carrier bags suddenly had to become biodegradable. As a result if you’ve packed stuff away in a cupboard for years you may now have a pile of desiccated plastic detritus and all your stuff rattling around loose. Really annoying. But apparently we need something else to make our lives more incomplete: to pay for carrier bags. Given they were biodegradable what is the point of this?

Probably to hit some fictitious pointless green target that can’t be hit, cue VolksWagen. The snag is it won’t work because when retailers gave away bags quality control wasn’t needed. Now, it seems, they have to make them to a higher standard using more plastics than before precisely because they are selling them, ergo the problem is worse. According to my sources, people are going down the Anne Widdecombe route for shopping at the store (bag for life), and the impact on deliveries has been to make them take longer at the doorstep, which is the opposite of the bag-fest that used to exist, where they’d often put one item in a bag on its own for some unknown reason. Luckily, in the short term, most of us have stocks of what, at 5p per throw, amounts to several hundred pounds worth of carrier bags in the cupboard, and a hoarder’s windfall of possibly thousands.

Perhaps people will be guilt-tripped into buying more bags at 5p when they announce it underpins the new funding strategy for the NHS.

The fact is though that this is just another nail in the coffin of the supermarket retail sector. Rising minimum wages, 5p carrier bags and less efficient deliveries all make for a marketing mix which comes at a critical time. Sainsbury (SBRY) has been range-bound for a while now – over a year in fact – and it’s been lacklustre since before 2009. If it falls out of bed here then we can expect a measured move short to 130p below the present support at 225p, which is under £1. That sort of makes Sainsbury the £1 shop if it happens. Upside tends to be less spectacular in this situation.

Tesco (TSCO) looks to be in even worse shape. What a massive reversal, well, chart! Long-term support at just above 160p goes back to the late 90s. If they find it hard and fall below there then they’ll be ripe for a hostile take-over. There is nothing redeeming about this scenario. Put your bargepoles away.

Morrison (MRW) sold their local shops ‘M Local’ to a consortium. They’ve been rebranded ‘My Local’ and at least thus far have not impressed former M Local shoppers according to my research. No more cheap ‘meal deal’ lunch packages and inconsistent branding thus far, as the carrier bags they are using say Nisa on them. Morrison is on the hook for some downside if the new brand goes bust. The Morrison chart is at a pivotal point too, testing support again at around the 160p level.

I wouldn’t be surprised to see one of the successful European brands make a bid if any of these stocks falls from here. Spar might be in the frame, as they’ve got a pretty aggressive expansion plan. This of course makes shorting the stocks a bit iffy, as a take-over bid, or even rumour, could wipe profits into losses quickly on a short trade. Option straddle anyone?