-Tesco and EasyJet feature as most bought shares 

-Tesco fights with Heinz for lower prices

-EasyJet under increasing criticism for flight cancellations

Food retailer Tesco (TSCO), and budget airline EasyJet (EZJ) feature amongst the most bought shares on the AJ Bell Youinvest platform over the past week. This is despite the decidedly mixed news that has surrounded both companies.

PROTECTING PROFIT MARGINS

Last month a huge row erupted between Tesco and the world’s fifth largest food manufacturer Kraft Heinz (KHC:NASDAQ), after Tesco refused to increase the prices on a multitude of products including a can of beans.

In retaliation Heinz has refused to supply Tesco with its most popular products. A similar situation has occurred with Mars stopping the supply of pet food to Tesco.

The price of Heinz staples including salad cream, ketchup and soup have witnessed eye-watering increases of up to 55% in June.

These price increases coincide with the worst standard of living crisis UK households have witnessed since the 1970’s.

Rising fuel and food costs are squeezing household finances and threaten a global recession as consumers reduce their levels of consumption.

At the core of the dispute between Tesco and Heinz is their desires to protect their respective margins and profitability.

Heinz believes that increasing prices is critical to maintaining its 13% profit margin on food. However for Tesco passing on these increases threatens the current 4%- to-5% profit margin it achieves.

On a six-month basis shares in the food retailer have fallen by 11.3%. In the last 5 days the shares have risen 1.5%.

TURBULENT TIMES

Budget airline EasyJet has encountered a series of negative press comments following the cancellation of up to 80 flights a day from UK airports.

A leaked letter from the airline’s French pilots suggested that the airline had suffered ‘operational meltdowns” and cancelled viable flights. It also suggested that disruption to the airline’s flights this summer would get worse.

On a more positive note easyJet is well positioned due to strong pricing recovery in the European short haul market.

Also EasyJet had a relatively high network overlap with Alitalia and Norwegian in 2019, which are due to fly much less in 2022.

Shares in the budget airline have fallen by 28% on a one month basis, and by 42% over the last six months.

Disclaimer: Financial services company AJ Bell referenced in this article owns Shares Magazine.

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Issue Date: 06 Jul 2022