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In the last year, food and drink prices in the UK have risen by nearly 5%, according to the Office for National Statistics (ONS). Even the beloved meal deal hasn’t escaped the hikes, as Tesco raised the price from £3.60 to £3.85 for Clubcard holders in August.
There’s no easy way around the pain consumers have felt from these increases. But if grocery prices are up, is there any way we can benefit from cost rises? It may be possible to make some progress through meticulous use of rewards programs, but you could also get a bigger payday by investing in food retailers and banking any dividends.
Notably, it’s not that grocery stores have simply been inching costs up for consumers and pocketing the difference. Supply shortages on items like chocolate, coffee, and eggs have made it more expensive for stores to put food on the shelves. However, many grocery stores have also enjoyed healthy share price gains in the past year and continued to pay out dividends to their investors who’ve enjoyed a relatively fruitful period.
Of course, there is a major caveat to this exercise: We all need to eat, so simply investing the money we would spend on groceries is not at all practical. But, for those with a little extra cash, or those like me, whose grocery shop ‘essentials’ include a weekly supply of choc ices and a splurge on Teapigs instead of Twinings, a little reallocation may be possible.
Tesco
On the face of it, Tesco has one of the most attractive reward programs for shoppers in the classic Clubcard. Still, it doesn’t sound quite so appealing when you break down the numbers. For every pound you spend at Tesco, you get one point. And for every 100 points, you get £1 in rewards. Translation? For every £100 you spend at Tesco, you get £1 in return (plus, a few grocery shops).
But are investors in Tesco shares much better off than its shoppers? Tesco has a 3.3% prospective dividend yield, meaning for every £100 worth of Tesco shares you own, you could potentially get £3.30 in dividends this year (not factoring in fees).
This is more than three times the equivalent return you’d get from £100 of Tesco Clubcard points, with the obvious caveat that your share purchase won’t be providing you with any groceries, but ownership of the shares. However, you could possibly benefit if the share price increased. In the past 12 months, the share price has gone up 21%, although it’s vital to note that future success is not guaranteed.
Sainsbury’s
Even if you are an avid user of your Nectar card, Sainsbury’s rewards programme is a steep slope. If you spend £500, you will receive a free £2.50 in Nectar rewards. In other words, 50p for every £100 you spend. While I do feel a small sense of accomplishment taking £2.50 off my grocery shop, it’s quickly overpowered by the knowledge that I’ve spent another £500.
Notably, you can get a slightly better return if you cough up £30 each year for an American Express Nectar card, where you get 2 points per pound spent anywhere, and at least 3 points per pound spent at a Nectar partner. If you went down this route, you might be able to get your returns closer to £1.50 for every £100 spent at Sainsbury’s.
For those looking to spend as an investor rather than a shopper, Sainsbury’s has a 4.6% prospective dividend yield on its shares, equating to £4.60 in annual cash payments for every £100 in shares you own, not including fees.
The return from Sainsbury’s dividends would be nine times that of the traditional Nectar card, and three times better than the AmEx Holders (not factoring in charges). However, there is still a chance that the value of Sainsbury’s shares falls in the future – even though we note it has gone up by 4% over the past 12 months.
M&S
The home of the beloved Percy Pig and Colin the Caterpillar has one notable downfall: M&S’s Sparks loyalty scheme is not a standard rewards programme. The only alternative is to hold an M&S Rewards credit card. Although the card has no annual fee, having a variety of credit cards that you need to keep track of and repay is not the ideal method for most people.
If you do choose to become a card holder, you will enjoy the same rewards as a holder of a typical Tesco Clubcard: £1 of rewards for every £100 spent. But for M&S, you will only start receiving the awards when you reach 200 points (meaning you spent £200) and they are sent out quarterly. Perhaps not the most enticing scheme. Then again, something needs to fund the innovation of the seasonal sandwich collection (strawberries and cream, anyone?).
Devastatingly to my fellow M&S fiends, we are not much better off in the dividend department. Currently, M&S’s prospective dividend yield is just 1.5%. That means £100 in shares would award you just £1.50, a measly 50p more than the credit card rewards and not even enough for a packet of Percy Pigs. But not all hope is lost; dividend growth is forecasted at 45%, so that 1.5% yield could be significantly higher soon, if the trend continues. The dividend was temporarily paused for a few years, and M&S is now playing catch-up as it rebuilds the shareholder reward.
Should you invest where you shop?
When it comes to choosing grocery stores for our shopping, we must get our food from somewhere and take the rewards we can get (or, become well acquainted with Aldi). But as investors, we have much more flexibility, and the right choices can help soften the blow of rising costs, both through dividends and share prices.
Investing in individual stocks to benefit from dividend payments is not the only method. Some income funds tracking the FTSE 100 are paying a dividend yield of over 4%.
Funds can also provide instant diversification and less need for monitoring than an individual share.
Ultimately, investing isn’t going to make your grocery shop cheaper. But it has the potential to make your pockets a bit heavier, so the rises don’t cut as deeply into your budget.
Hannah Williford: Content Writer
Hannah joined AJ Bell in 2025 as an investment writer. She was previously a journalist at Portfolio Adviser Magazine, reporting on multi-asset, fixed income and equity funds, as well as macroeconomic impacts and regulatory changes...
