In this article I explaining why J Sainsbury (LSE: SBRY) (NASDAQOTH: JSAIY.US) should continue to enjoy solid market share growth.

Middle-ground mammoth to continue rising

Make no mistake: the British grocery space is becoming more and more fragmented, the rise of both high- and low-end retailers causing the sector to become concertinaed.

Still, I believe that Sainsbury’s ability to steal custom away from its mid-tier rivals bodes well for future earnings growth, a phenomenon that saw its market share edge to 16.7% during the 12 weeks to June 22 — according to Kantar Worldpanel — up from 16.6% in the corresponding period last year.

At the moment Sainsbury’s sales performance is made to seem somewhat inadequate when tallied up against the impressive headway made Sainsbury'sby the country’s discounters. Indeed, Aldi and Lidl maintained their market share at record peaks of 4.7% and 3.6% respectively during the 12-week period, having seen checkout activity rise 35.4% and 22.3% from the same 2013 period. By comparison Sainsbury’s punched a rather more modest 3% advance.

However, the supermarket’s resilient performance shows the success it is making in grabbing custom away from the rest of the mid-tier grocery sector. Indeed, fellow market bigwig Tesco saw its share collapse to 28.9% from 30.3%, while Morrisons‘ take dropped to 10.9% from 11.7% — these results were prompted by sales falls of 1.9% and 3.8% correspondingly.

While these two are being forced into an intensifying price dogfight to even stand still, Sainsbury’s is not affected to the same degree as a drive to improve the quality and image of its in-house brands — such as its premium Taste the Difference line– has enabled it to maintain its popularity amongst more affluent customers unaffected by the drive of the budgeteers.

Still, the London-based firm’s is still keen to take on the likes of Aldi in the bargain-basement stakes and boost earnings growth, and announced last month plans to reintroduce the Netto chain to the UK. The joint venture with Dansk Supermarked will see 15 stores rolled out by the end of 2015 with a view to nationwide roll-out thereafter. IGD expects the annual turnover of the British discount space to double to around £20bn within the next five years.

Combined with its rising success in the UK’s sizeable middle ground — collectively, Tesco, Asda, Morrisons and Sainsbury’s still control almost three-quarters of all supermarkets’ market share — I believe that there are plenty of customers for Sainsbury’s to successfully court in coming years.

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> Royston does not own shares in any of the companies mentioned in this article.