Will Amazon.com, Inc & WM Morrison plc Sink Tesco PLC And J Sainsbury plc?

Amazon.com, Inc (NASDAQ: AMZN.US) and WM Morrison plc (LON: MRW) have delivered a major blow to Tesco PLC (LON: TSCO) and J Sainsbury plc (LON: SBRY), says Harvey Jones.

| 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.

We knew Amazon (NASDAQ: AMZN.US) had an appetite for setting up a net-based grocery delivery service but cooking up a supply agreement with big four supermarket WM Morrison (LSE: MRW) was a coup. Markets may have been licking their lips but the announcement will have left a nasty taste in the mouths of management at Tesco (LSE: TSCO) and J Sainsbury (LSE: SBRY).

What’s cooking?

Amazon launched its nationwide same-day grocery delivery service Amazon Pantry last autumn, but the hook-up allows it to offer fresh and frozen food for the first time. Subscribers to Prime Now and Amazon Pantry will soon be able to order hundreds of Morrisons products for home delivery. It isn’t hard to see the practical benefits to Amazon, which can now offer perishable items such as soups and orange juice without having to build up a costly supply chain first.

It’s even easier to see the attraction for Morrisons. The mere fact that it has hooked up with a big-hitter like Amazon will raise its standing among investors. It also allows the Bradford-based supermarket to access more customers in the wealthy Greater London area, where its presence is minimal. Maybe it will put a stop to all those sneers about being slow-off-the-blocks in the online grocery race. 

The stock was already on a roll after hitting a low of 139p in December. Today, Morrisons trades at nearly 204p, some 46% higher than its pre-Christmas low. As we’ve seen in the oil sector, contrarians brave enough to buy apparently burned-out stocks can make red-hot returns from time-to-time.

Bitter fruit

Amazon and Morrisons may be enjoying each other’s company, but Tesco boss Dave Lewis has been left feeling like a gooseberry. Despite its recent troubles, Tesco has always remained the big boy on the block, with the punching power to inflict serious damage on rivals if it ever got its act together. 

Tesco has nevertheless struggled against German upstarts Aldi and Lidl. But now the competition has got bigger and badder, especially given Amazon’s willingness to sacrifice short-term profits for long-term market share. Amazon Prime customers get free delivery for just £79 a year, against up to £5 a pop from the big four (who still make a loss on the £20 cost). Expect more complaints about Amazon’s relatively cushy tax arrangements, which give it another edge over Tesco and Sainsbury’s.

Delivering the goods

J Sainsbury’s share price has largely shrugged-off the threat but that may change as we watch Amazon’s progress. Online groceries are big business for Sainsbury’s, with Q3 sales up nearly 10% and orders up 15%, and investors won’t want to see that slow or go into reverse.

Amazon still needs to prove that it can compete by offering customers the same level of choice as Tesco and Sainsbury’s, as I believe most online customers will prefer a one-stop shop. But given its track record, investors now have another reason to fear the supermarket sector.

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.

Harvey Jones has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended Amazon.com. 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 »