The Motley Fool

The Supermarket War: Aldi vs J Sainsbury plc And Wm. Morrison Supermarkets plc

It’s 8:00am on Friday morning. I live in quite a middle-class area, but there’s an Aldi near me. And already there is a pretty long queue of elderly people eager for the doors to open…

As I shop there every week, I make a note of the kind of people who frequent the store. I’ve shopped there at different times: I would say around 70% of the people are over 50; some may describe them as thrifty. It’s a good job they are, because Aldi will charge them for a plastic bag.

There is no music playing in Aldi. You have to shove a pound into the trolley if you want one. The floor is made up of yellow tiles, some of which are cracked. At 8:00am, the narrow aisles will often be half obstructed by big boxes.

Yet the prices are all cheap. You could go to a shelf and randomly pick more or less anything and it would actually be good value for money probably, not just cheap. The fresh vegetables and fruit are quite good. And there is always a massive queue at the checkout of people waiting to pay for their goods, rushed through quickly by till operators. At the front of the till, they advertise for new staff.

Even at 8:00am, the car park is so full it’s hard to get a place.

Anyway, I do the other half of my shopping at Morrisons (LSE: MRW). It’s only a few hundred metres away from Aldi; I go there straight after. The car park is much bigger and there’s plenty of space. You don’t have to pay for a trolley and as you walk in there is music playing and the store is warm and bright. There are much more staff around, in fetching green aprons no less.

morrisonsHowever, and this is key, the store is nowhere near as busy as Aldi. I’ve been shopping in Morrisons for a long time, roughly from when the store opened 20 years ago. There used to be more customers.

Overall the ‘shopping experience’ is much better than in Aldi, but the prices are quite a lot worse. My tip for shopping in Morrisons is to only buy things that are on offer, or only buy Morrisons’ own brand — but even then it’s still dearer than Aldi.

You can check out your shopping much more quickly at Morrisons, and at the tills they are advertising their online shopping service. Better late than never.

Hopefully this snapshot has given you some insight into how the businesses may be operating on a personal level — it’s important to look at figures with shares, but it’s also great if you can get personal experience with the business. That’s why I check out branches of HSBC when I’m in town, too.

Aldi aren’t on the UK stock market and I don’t have shares in Morrisons. I do, however, have shares in Sainsbury’s (LSE: SBRY). I was attracted by the good dividend yield (currently 5.41%) and the nice P/E ratio (currently 9.6). I believe that Sainsbury’s will be affected less by the likes of Aldi and Lidl than Morrisons or Tesco, but they still will be affected in some way, shape or form. That’s probably why they’re going to open 15 Nettos by the end of the year, and there are rumours that a Sainsbury’s store might be turned into a Netto! Overall, though, I think Sainsbury’s business model has a decent chance of retaining most of its middle-class customers, especially down south.

Looking at Morrisons as a share is interesting, too. The dividend yield is a stonking 7.24% and the P/E ratio is only 9.5. Seems cheap as chips. However, you should think carefully before investing in this share. I have no current plans to do so, even though it’s trading around the level of its Net Asset Value (NAV). Take a look at how much the share price has dropped over the last six months and over the last year. Just over a year ago the share was trading at 312p. Six months ago it was 250p.

I believe Morrisons will be effected quite a bit more than Sainsbury’s by Aldi, Lidl and other discounters. Sainsbury’s has many more stores, including convenience stores, located in London and the South East. And the shopping experience is different in Sainsbury’s, too — some Sainsbury’s have a pharmacy and even a bank to pull customers in and retain them. What’s more, Sainsbury’s online offering is more advanced than Morrisons.

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Mark has shares in Sainsbury’s and HSBC.