The problems facing Britain’s listed supermarkets are no secret to even the most novice investors.
A backcloth of intensifying competition — led by the German budget chains Aldi and Lidl — has smashed earnings at established chains like Tesco, Sainsbury’s and Morrisons as the importance of buying more for less has steadily grown.
But could latest data from Kantar Worldpanel suggest that a change is in the air?
Booze sales sprint
The retail expert advised on Tuesday that supermarket sales in Britain edged 0.3% higher during the 12 weeks to 11 September thanks to the ‘Olympic Effect.’
Alcohol sales rose by 8.5% in the past four weeks as Britons sat down to watch The Olympic and Paralympic Games. This phenomenon helped Tesco enjoy its best three-month performance since March 2014 — sales here dipped ‘just’ 0.2% during the latest period as the retailer’s promotion-led ‘Drinks Festival’ took off.
Shares still slipping
Still, these latest results couldn’t mask the huge structural changes damaging Tesco and its peers. A sales decline is never cause for celebration, after all, and Tesco’s latest drop pushed its market share to 28.1%, down 10 basis points from a year earlier.
Sales at Morrisons slipped 2.3%, meanwhile, with store closures adding to the pressures created by its eroding customer base. The grocer’s market share now stands at 10.4% versus 10.7% a year ago.
And till rolls at Sainsbury’s shrank 1.4% in the period to mid-September, also forcing its market share 30 basis points lower to 15.9%.
Discounters dance higher
Once again it was left to the cut-price operators to set the pace, with sales at Lidl leaping 9.5% and revenues at Aldi roaring 11.6% higher. Their respective shares of the market came in at 4.6% and 6.2% as a result, up from 4.2% and 5.6% in the same 2015 period.
Another stellar performance led Kantar’s head of retail and consumer insight Fraser McKevitt to comment that “not only are both continuing to expand their store estates but existing customers are visiting more frequently and upping their basket size.”
And the surging popularity of the Germans’ cheaper products continues to drive deflation across the industry, with Kantar noting that prices dropped 1.1% during the latest three-month period.
Additionally, Kantar’s comment that “discounters are helping drive the industry-wide growth in premium own-label lines” will come as a further blow to Tesco et al.
Indeed, it’s the inability of the UK’s traditional outlets to adapt and innovate that has opened the door for Aldi and Lidl to run roughshod over their patches. Instead the country’s big players remain reliant on a course of earnings-shredding price reductions to stop their stores becoming halogen-lit ghost towns.
And US internet colossus Amazon’s move into the grocery sector has heaped on further pressure in the key online sub-segment. Just this month the company expanded the scope of its AmazonFresh delivery service to 190 London postcodes, up from 69 when launched three months ago.
Against this backcloth I believe investment in any of the Footsie’s embattled supermarkets remains risky business. Indeed, I believe things will become a lot tougher for Sainsbury’s, Tesco and Morrisons in the months and years ahead.
Royston Wild 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.