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Investing.com -- RBC Capital Markets downgraded Associated British Foods plc (LON:ABF) to "sector perform" from "outperform," citing weakening consumer price perception at its Primark division and continued pressure in its Sugar business, in a note dated Wednesday.
The analysts maintained a cautious stance despite recognizing Primark’s continued potential for space-driven sales growth and resilience in gross margins.
RBC analysts pointed to survey data showing that Primark’s price positioning has shifted over the past decade.
While the brand was once widely seen as the cheapest apparel retailer across several major European markets, more recent data from 2025 indicate that it is now perceived as occupying a mid-market position.
This shift in perception has raised concerns that Primark is losing its core value-for-money appeal, even as some customers now rate its quality and style more favorably.
The downgrade also reflects broader performance challenges. Like-for-like sales at Primark have been flat on average over the past ten years, excluding the pandemic period.
RBC said it expects that trend to continue due to the retailer’s maturing presence in the U.K. and parts of Europe, and due to intensifying competition in the discount retail space, especially from online-only players.
RBC acknowledged that Primark continues to offer a compelling store expansion opportunity, particularly in the U.S. and underpenetrated European markets.
The analysts estimate the retailer could sustain a 4% to 5% space contribution to sales over the next five to ten years.
However, they noted that space expansion alone may not be enough to offset weaknesses in like-for-like sales growth.
In ABF’s food businesses, the outlook remains mixed. Grocery is expected to have a subdued year, primarily due to price normalization in the U.S. market after two years of strong performance. Sugar operations face more pronounced challenges, including losses at the Vivergo bioethanol unit and weaker sugar prices in Europe.
These factors are weighing on overall profitability, despite stronger performance in AB Mauri’s yeast and bakery ingredients business.