Will 2015 Be The Year That Tesco PLC, J Sainsbury plc And Wm. Morrison Supermarkets plc Finally Beat Aldi And Lidl?

Could things improve significantly for Tesco PLC (LON: TSCO), J Sainsbury plc (LON: SBRY) and Wm. Morrison Supermarkets plc (LON: MRW) in 2015?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

As all investors know, 2014 has been a year to avoid supermarket shares. That’s because their performance has been hugely disappointing, with shares in Tesco (LSE: TSCO), Sainsbury’s (LSE: SBRY) and Morrisons (LSE: MRW) falling by 50%, 37% and 33% respectively since the turn of the year.

Of course, a key reason for such declines has been disappointing levels of profitability, which has been caused to a large extent by the increasing popularity and growth of no-frills operators such as Aldi and Lidl. They have gradually eaten away at the market shares of the likes of Tesco, Sainsbury’s and Morrisons, thereby creating a savage price war that seems to have no end in sight.

In addition, Tesco has had a £263 million accounting scandal to endure, which has been a major contributing factor to it having three profit warnings in as many months. The latest one entails a fall in forecast trading profit from £2 billion to no more than £1.4 billion and shows that the company has a long journey back to full health ahead of it.

However, could 2015 be a better year for the established players? Can Tesco, Sainsbury’s and Morrisons really overcome Aldi and Lidl in 2015?

A key reason for the rise of no-frills operators such as Aldi and Lidl has been a squeeze on disposable incomes. Wages in the UK have grown at an incredibly weak rate and, although inflation has perhaps been lower than was first anticipated when QE was announced, it has still meant that the value in real terms of people’s incomes has fallen. This has been the case for a number of years and, therefore, it is little wonder why consumers have become much more price conscious.

Looking ahead, though, the Bank of England expects this situation to reverse during 2015, which means that the spending habits of shoppers could change. For example, they may spend more on higher quality products and branded goods, which could help to boost the likes of Tesco, Sainsbury’s and Morrisons next year. Certainly, if this occurs it will be a slow process, but even the start of a gradual shift in consumer spending habits could be enough to boost investor sentiment in the supermarket stocks over the medium term.

The plan thus far among the major incumbents has been to simply cut prices. That hasn’t worked and, as a result, new strategies are being adopted by the ‘big three’. These include a rationalisation of Tesco’s business, including the potential sale of non-core operating units such as Blinkbox and the recruitment of 6,000 new staff members as the company attempts to differentiate itself from peers via improved levels of service. Meanwhile, Sainsbury’s is itself entering the no-frills segment via a joint venture with Netto and Morrisons is accelerating its online and convenience store expansion in an attempt to appeal to a different type of customer than it has in the past.

Of course, strategic shifts and a change in living standards are unlikely to change the short-term outlook for Tesco, Sainsbury’s and Morrisons. That’s because they will take time to have an impact on the top and bottom lines of the companies operating in the supermarket sector. Furthermore, the short term changes being implemented at the major supermarkets, notably Tesco, could cause considerable short term pain before they start to generate longer term gain.

As a result, 2015 could feel rather like 2014 in terms of supermarket share prices being weak but, looking back on it, 2015 could prove to have been the perfect time to buy shares in Tesco, Sainsbury’s and Morrisons. That’s because next year could be the start of the comeback, with their medium- to long-term futures having the potential to be far brighter than the market seems to currently believe.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens owns shares of Morrisons, Sainsbury (J), and Tesco. The Motley Fool UK owns shares of Tesco. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »