Remember the days when supermarket giant Tesco (LSE: TSCO) inspired fear and loathing in equal measure, a reaction against its drive to gobble up the high street? In those pre-crisis days it even dreamed of dominating the US, Europe, Asia and beyond. The world looks very different today.

Out for the count

In November 2007, Tesco’s share price hit a high of 484p. Today, it trades at just 168p, having sacrificed 65% of its value. Investors who hung on hoping the good old days would return have been hammered, with the stock down 54% over the past five years, and another 5% over 12 months.

Investors in rival Sainsbury’s (LSE: SBRY) have also had a grim time. Its share price peaked at 589p in autumn 2007 but today it trades at 239p, a similar-sized drop of 59%. It has done better than Tesco over the last five years, falling “just” 15%, and is actually up 5% over the past 12 months. But it still trails the FTSE 100, stretching the patience of even the most loyal investors.

Off the ropes

Morrisons (LSE: MRW) found itself in the biggest pickle of all, as boardroom punch-ups, declining sales, failed ventures and vanishing customers put the company in mortal peril. Yet it has staged a spiriting fightback and its share price is now up 32% in the past 12 months, trashing the FTSE 100 that grew less than 8% over the same period.  

Yesterday it delighted markets by reporting 35% growth in underlying earnings per share for the six months to 31 July. Underlying profit before tax jumped 11% to £157m, although this was mostly due to cost-cutting, with like-for-like sales (excluding fuel) up a modest 1.4%. Management hiked the interim dividend a healthy 5.3% to 1.58p. 

Food fight

Chief executive David Potts is getting Morrisons fighting fit to compete against budget champions Aldi and Lidl. He recently launched another round in the supermarket price war, with cuts of up to 20% on meat and poultry, and will be hoping that increased sales and transactions will offset rampant food deflation. With the cash flowing and debts falling, Morrisons looks like a contender again. It has also slowed the slide in market share, which is currently holding firm at 10.6%, according to latest figures from Kantar Worldpanel.

Tesco’s share stands at 28.3%, putting it way ahead of second-placed Sainsbury’s at 16.2%, which shows that you still shouldn’t write off this behemoth. In both cases the drop in share has also slowed, although Aldi and Lidl continue to nibble away at the bottom end, and Waitrose at the top.

Cheap but not so cheerful 

Tesco is also battling to give customers what they want – mostly cheaper food prices. Chief executive Dave Lewis has enjoyed some success with transaction numbers and grocery volumes rising, alongside like-for-like sales. However, his decision to “reinvest in pricing” means no dividend and tight future profitability, which suggests continued thin pickings for shareholders.

The outlook for Sainsbury’s is hard to gauge as so much now rests on whether chief executive Mike Coupe can successfully integrate new acquisition Argos into its stores, and make money from his risky venture. My guess is that it will prove quite a challenge. But then, this is a challenging sector.

Investors after exciting growth prospects should look beyond the troubled grocery sector. 

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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.