J Sainsbury plc Shows Tesco PLC & WM Morrison Supermarkets PLC The Way

In February, J Sainsbury (LSE: SBRY) declared that it planned to scale back multi-buy promotions in its stores. Hurrah!

The way supermarkets force consumers to buy multiple items just to get the ‘correct’ price is annoying and it discriminates against single people. Three-for-the-price-of-two promotions and the like should be tossed in the dustbin of supermarket history. The supermarkets should copy Aldi and Lidl by charging their keenest price for an item, and that’s that — simple.

Not hurting sales

According to market researchers Kantar Worldpanel, Sainsbury’s new stance hasn’t hurt its sales. Over the 12 weeks to 27 March, Sainsbury led the big four supermarkets by driving up sales 1.2%. During the period, customer spend on deals requiring the purchase of  two or more items together fell by 73%, with shoppers instead buying a price-cut promotion or paying full price. Tesco (LSE: TSCO), WM Morrison Supermarkets (LSE: MRW) and Asda should sit up and take notice.

The latest figures from Kantar Wordpanel show overall sales growth in the sector up 1.1% compared to the same period last year. This year’s early Easter gave the supermarkets a sales boost though. Underneath these growth figures, price deflation continues to hold sales figures back with like-for-like prices 1.5% lower than this time last year.

It seems that shoppers are saving money on their grocery basics and spending it on premium own-label goods, an area where overall sales grew by 6.6% over the past 12 weeks. Guess who’s leading the charge with that? Aldi and Lidl, of course. The pair grew their premium lines more than twice as fast as their other lines. Once again, Tesco, Sainsbury, Morrison and Asda played catch-up.

A persistent threat

That 1.1% overall sales growth in the sector I mentioned earlier pales against the progress Aldi and Lidl continue to make. Lidl grew comparative sales a stunning 17.7% in the period to claim 4.4% of the overall grocery market in Britain, and Aldi ballooned by 14.4% to reach a new record-high market share of 6%. That’s 10.4% of Britain’s grocery spend between the two of them and rising fast.

What else can the big four do to catch up? Sainsbury’s ditching of its multi-buy strategy is a good start, but I think the supermarkets should go much further towards emulating Aldi’s and Lidl’s sales methods. For a start, I would have them take an axe to their pointless, time-wasting and frustrating loyalty card schemes and just charge the price for goods that the price is. Discount vouchers and promotions of all kinds should also go out the window. Customers will thank the supermarkets for freeing up their purses, wallets and key rings, and the costs saved can be ploughed back into lower prices — the real hook for catching customer loyalty.

Growth for the sector looks set to be hard to come by and the threat from Aldi and Lidl looks as strong as ever. The big four supermarkets are fighting to survive, which is not a good basis for an investment in the sector.

If I could invest in Aldi and Lidl on the stock market I probably would, but I'm avoiding Sainsbury, Tesco and Morrisons in favour of companies such as the quality, growing firms featured in this special Motley Fool investment paper.

Our analysts believe that focusing on high-quality businesses, with an investment time horizon measured in years, can produce market-beating returns. You can judge the strength of these stock market opportunities for yourself by downloading this free report right now.

Click the link that follows and you'll get instant access to research on five quality firms, free and without any obligation. To find out more, click here.

Kevin Godbold 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.