The dangers have just risen for Tesco and the FTSE 100 supermarkets. I’d avoid them today

Thinking of buying the FTSE 100 supermarkets? Royston Wild looks at why you should probably think again, as the risks have just grown significantly.

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It took a long time for the German discounters to join the online party. But it seems the Covid-19 outbreak — and its possible long-term impact on consumer habits — is prompting Aldi to begin properly embracing the digital shopping phenomenon. It’s a development that challenges the position of the FTSE 100 supermarkets even further.

Last month, Aldi announced it was taking its first foray into selling groceries online. I said it would begin selling boxes of pre-selected goods to help vulnerable people remain fed and watered during the lockdown period.

The Central European chain has since taken an additional step in the potentially-lucrative internet segment. It announced on Monday it has teamed up with Deliveroo to offer what it calls “a rapid delivery service” from its Daleside Road store in Nottingham.

Customers will be able to order up to 150 Aldi products to be packed in-store and dropped off by Deliveroo drivers. The supermarket plans to extend the scheme to an extra seven stores in the East Midlands in June. And, if successful, Aldi says it could extend the scheme to additional shops by the end of 2020.

A game changer?

Embracing the online shopping trend has taken a back seat for the German chains in recent years. Unlike the FTSE 100 operators, they’ve invested billions of pounds to expand their estate of physical stores instead. It seems though, the surge in grocery orders made online has caused a rethink.

A report just released by Mintel shows why Aldi has finally decided to take the plunge. It says the coronavirus outbreak has had a “seismic impact” upon the UK’s grocery sector. Consequently, the research house predicts the value of the online grocery market will explode 33% in 2020, to be worth a whopping $16.8bn.

And Mintel suggests sales of edible goods via the internet will keep surging long after the coronavirus crisis has (hopefully) passed.

Nick Carroll, associate director of retail research at Mintel, said: “Shopper numbers in the online grocery market have plateaued in recent years as retailers struggled to get new customers to try these services. The outbreak is bringing a new audience to online grocery, and this should boost the market long term with strong growth forecast through to 2024.”

Screen of price moves in the FTSE 100

Fear for the FTSE 100 firms!

Aldi is already snapping at the heels of the so-called ‘Big Four’ operators. According to Kantar Worldpanel, the UK’s fifth most popular chain commands a market share of 7.9%. This puts it within spitting distance of Footsie-quoted Morrisons whose share stands at a fraction shy of 10%.

Clearly, the opening up of a new front poses huge dangers for the larger operators, such as Tesco and Sainsbury’s too. And it could well lead to the other low-price mammoth Lidl entering the internet arena.

Profits at Britain’s established chains have taken an almighty whack over the past decade as the German chains have expanded. And if they have the same influence on the market in cyberspace as they have in the real world, then these FTSE 100 companies really will be in trouble. This is why I’d avoid them at all costs and look for better opportunities, of which there are many in the FTSE 100.

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.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesco. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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