Why I’d Sell Tesco PLC & J Sainsbury plc On Latest Nielsen Data

Latest data released by research house Nielsen on Tuesday underlined the chronic problems facing the country’s established grocery houses like Tesco (LSE: TSCO) and Sainsbury’s (LSE: SBRY).

The body’s numbers showed Tesco’s market share slip by 20 basis points during the four weeks to October 10, to 27.5%, Sharecast reported. Meanwhile rivals Morrisons and Asda both saw their shares fall by 100 points in the period, to 10.7% and 15.5% respectively.

Sainsbury’s put in a much-better performance during the period and saw its slice of the market remain stagnant at 15.9%. However, Nielsen’s numbers will concern all of the major retailers as, after a few months of sales moderation, activity at the country’s major discounters is picking up the pace once again.

Indeed, Lidl saw sales rocket 23.3% in the three months to October 10, the quickest rate of growth for almost a year and driving its market share to 4.4% versus 3.6% at the same point in 2014. And Aldi saw its share advance to 6.6% from 5.2% over the period, driven by a stunning 27.6% sales upswing, the fastest rate of growth for 18 months.

Asda on the rocks

The researcher’s release follows Asda’s tricky trading update issued on Monday. This showed till activity at its established stores — i.e. those open for a year or more — slump 4.7% during April-June. This was the worst quarterly performance in the firm’s 50-year history.

As Nielsen’s data today shows, these customers are not breaking down the doors at Tesco and Sainsbury’s, and are instead flocking to the budget chains in their droves. On top of this, Asda — like its ‘top four’ competitors — are seeing revenues slip as the chronic price wars across the middle tier intensify.

Landscape becoming tougher

And Asda is not the only operator failing in this regard — Tesco saw like-for-like revenues slump 1.1% in the six months to August, while Sainsbury’s also saw underlying sales drop 1.1% in July-September.

All of the mid-tier operators are failing to protect their customer bases despite introducing price cut after price cut, and they cannot compete with the premium outlets on quality, either. Indeed, Nielsen advised that Marks & Spencer enjoyed a 3% sales boost in the four weeks to October 10.

And the situation is likely to get even more perilous for Tesco et al, in my opinion as both low- and high-end chains plough billions into expanding their store networks, while Aldi’s plans to begin selling wine online is especially worrying — internet shopping is the sole genuine growth area for the established retailers.

As a consequence, Tesco is expected to chalk up a fourth consecutive earnings drop in the year to February 2016, this time by a head-thumping 35%. And Sainsbury’s is anticipated to record a 19% dip in the period to March 2016. While both chains continue to flail in their battle against the discounters, I believe investors should continue to steer well clear.

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Royston Wild 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.