Tesco and Sainsbury’s face positives and negatives from Iran war side-effects, says analyst Proactive uses images sourced from Shutterstock
Tesco PLC (LSE:TSCO) and J Sainsbury PLC (LSE:SBRY) will face a complex mix of pressures in the coming months as higher fuel and fertiliser prices filter through to the UK grocery sector, Deutsche Bank warned.
Despite signs of easing inflation last year and into the start of 2026, the UK food retail sector is now confronting renewed cost pressures driven by the Middle East conflict, analysts at the bank said.
Rising energy-linked costs are likely to feed into supply chains, with implications for food prices and profit margins.
Supermarkets may see a modest benefit from stronger fuel sales, analyst Benjamin Yokyong said, but added that “the larger debate revolves around the health of the UK consumer if cost pressures persist”.
The National Farmers’ Union has warned of impending price rises for some fresh food items from greenhouses, with higher fertiliser costs likely to take longer to feed through,”but could have wider consequences if sustained”.
However, Yokyong noted that, as demand for food is relatively resilient, grocers are “largely able to pass through cost inflation in recent years”, ie raise prices to maintain their margins.
He sees discretionary non-food categories as more at risk from potential consumer caution.
Shares in Tesco and Sainsbury’s have outperformed the wider market this year, rising 10% and 8% respectively, and the broker lifted its price targets to 500p and 360p.
However, both stocks already trade at mid-teen earnings multiples.
Furthermore, while the Deutsche analyst said he remains positive on the sector overall, he warned that uncertainty around consumer spending and input costs “could limit near-term upside from here”