Consumers have flocked to Aussie supermarkets to stock up on essentials after the World Health Organisation declared COVID-19 a pandemic.
Toilet paper, hand sanitizer and food staples have become precious commodities and have been flying off supermarket shelves.
The buying panic has prompted Coles Group Ltd (ASX: COL) and Woolworths Group Ltd (ASX: WOW) to introduce buying limits.
Despite these measures and increased production, desperate shoppers have annihilated stock.
So much so, Woolworths this morning announced that as of tomorrow, it will introduce a dedicated shopping hour for the elderly and people with a disability to ensure they don't miss out on essential items.
Given the widespread buying panic, supermarkets could see some of the best third-quarter sales figures in years.
So, should you be buying supermarket stocks?
Analysts predict bumper sales
According to equity analysts at Citi, supermarket sales over the past week could surpass sales for the Christmas week – one of the industry's biggest periods.
Analysts also shed light on products that have been stockpiled by consumers such as toilet paper and canned goods. Traditionally, these products make up 4-5% of a standard supermarket basket, however, sales in these products over the past week are expected to equate to 1 or 2 months of regular sales.
How have major Aussie supermarkets performed?
Coles reported its half year results last month which highlighted strong growth. The supermarket giant saw sales revenue increase 3.3% across all segments to $16.6 billion for the half. Coles also reported a 49th consecutive quarter of supermarket comparable sales growth of 3.6% which was driven by increased basket size and transaction growth.
Coles is well poised to deliver its best single-quarter sales results in the last decade with the company predicting quarterly sales to be 3.6% for the second quarter. According to analysts Coles could get a $15 to $30 million bump to its full-year EBIT.
Woolworths also reported strong supermarket sales growth that was above trend for the first half. Despite cost headwinds, Woolworths reported total sales growth of 4.9% and comparable sale growth of 3.8% which was largely attributed to successful promotional programs.
Metcash Limited (ASX: MTS) owns and operates a range of supermarkets across Australia including IGA, Foodland and the Friendly Grocer. The supermarket operator reported its half year results at the end of 2019, which highlighted a positive 1.2% increase in total food sales for the first time since FY12.
Should you buy?
Supermarkets could potentially be immune from coronavirus and could provide investors with a possible hedge against the extreme volatility. If supply chains hold up the buying panic will manifest into a net positive for supermarket sales.
However, I think it would be prudent for investors to remain cautious and perhaps wait for market conditions to simmer before making an investment decision.
