Bernstein sees food inflation driving UK grocer earnings upside; names top picks

Bernstein says rising food inflation — driven by higher oil, commodity prices and FX moves — should boost European grocery retailers’ earnings over the next 6–12 months, lifting profit margins as costs are passed to consumers. The broker forecasts UK food CPI averaging 3–5% in 2026 and rising to 4–6% in 2027 (peak around Jan–Feb 2027), with pass-through hitting production in Q3 2026 and consumers in Q4 2026–Q1 2027. Bernstein names Tesco, Jeronimo Martins and Marks & Spencer as top picks, and notes valuation cushions and upside to consensus like-for-like sales estimates. Scenarios tied to oil at $110–$120 and a weaker pound could push 2027 CPI and earnings revisions higher. Overall, the note implies a positive (bullish) near-term outlook for UK/European grocers and potential upward revisions to analyst estimates and stock targets.