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Author: Alan LittleDate: 2020-08-21

Tesco (LON:TSCO) share price falls by 1.9% – strong rebound unlikely

Tesco (LON:TSCO) had hoped to be in the news for positive reasons this week after joining the Consumer Goods Forum’s Coalition of Action on Food Waste.

Instead, it found its share price dropping sharply following the conviction of sheep farmer Nigel Wright for blackmail – in which it was the victim.

Wright, 45, from Lincolnshire, is believed to have placed two jars of baby food contaminated with pieces of metal on Tesco shelves in Rochdale and Lockerbie.

He had written anonymous letters to the supermarket chain demanding money.

42,000 jars of baby food had to be recalled, though no evidence of further contamination was found.

Wright was caught as a result of the Lockerbie store’s CCTV, but his actions caused a dent in consumer confidence.

Thursday’s 1.9% drop in the share price to close at 225.00 on the LSE sees it back on the rocks after a sharp slump in March caused by COVID-19 and an impressive rebound in early May.

Experts think that it’s unlikely to rebound quite as impressively again because its tight margins don’t leave it with much room for manoeuvre in a crowded marketplace.

It has been in trouble in the past as a consequence of overextending itself, and in localities where it has been successful, it has already reached market saturation point.

Meanwhile, smaller supermarket chains are increasingly managing to undercut it and lure away its customers in urban areas.

For these reasons, Tesco stock may not be a good pick for investors despite the lower price.

It has had to spend heavily to adapt to circumstances created by the pandemic and it’s not clear where it can find the resources for near-term recovery.

It has also suffered a drop in online sales.

With Tesco struggling, however, this might be a good time to consider buying stock in the smaller chains likely to move into any gaps it leaves.

Tesco Stock Chart

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