The fiercely competitive British supermarket business has seen big swings in momentum during the recession, but now No. 1 Tesco is regaining strength
Sainsbury (JSAIY) will put the final piece in the jigsaw of the three big listed grocers on Thursday, when it delivers its full-year results. The UK's third-largest grocer is expected to deliver a further uplift in underlying pre-tax profits to £595m for the year to 20 March, following impressive performances from rivals Tesco (TSCDY) and Morrisons (MRWSY).
But the seemingly relentless march of the big supermarkets belies the fact there has been a substantial shifting of the tectonic plates in the £130bn grocery sector this year.
Of recent seismic shifts, Morrisons on Thursday reported a dramatic slowdown in its underlying sales growth to 0.8 per cent in the 13 weeks to 2 May. On the same day, it emerged that Asda's trading director, Darren Blackhurst, had left the Walmart (WMT)-owned grocer after being passed over for the role of chief executive. The move seems to have paved the way for Andy Clarke, the chief operating officer, to be anointed shortly.
Meanwhile at Morrisons, Dalton Philips joined at the end of March, as chief executive, following Marc Bolland jumping ship to take the helm at Marks & Spencer (MAKSY).
While this changing of the guard could change the fortunes of these grocers in the long term, far more significant changes have been taking place on the shop floor. These have included Asda slipping behind its three big rivals this year, Waitrose emerging as the sector's fastest-growing supermarket and the Co-operative Group's troubles integrating its Somerfield acquisition.
Above all, arguably the biggest change in the sector recently has been the return to form of Tesco, the market leader with a 30.5 per cent share. Clive Black, an analyst at Shore Capital, says: "Tesco was materially underperforming over the last 18 months to two years and now it is performing in line, if not slightly outperforming." Based on Tesco's market share, Mr Black says that in terms of generating cash, Asda and Sainsbury would have to grow their volumes by 2 per cent to match 1 per cent growth at Tesco, while Morrisons would have to grow by 2.5 per cent.
Tesco's recent fight back has been driven by its Clubcard loyalty scheme. Among a series of Clubcard initiatives last year, the most significant was a huge investment in "double reward points" promotion, dubbed Clubcard2, last August. Edward Garner, a director at Kantar Worldpanel, said: "Clubcard is their biggest weapon and you can't blame them for using it." Tesco also uses the card to glean crucial data about the shopping habits of more than 16 million holders.
For the 12 weeks to 18 April, Tesco delivered sales growth of 3.7 per cent, based on till roll data, which was ahead of Asda's 2.5 per cent but behind Morrisons' 6.6 per cent and Sainsbury's 4.1 per cent, Kantar said.
At Asda, Andy Bond, who is stepping down from chief executive to chairman, said on Thursday: "Our performance in the past few weeks has been more than encouraging." However, Asda's trading has been weaker than expected this year, although all the big grocers have seen their sales growth hit by falling food price inflation.
Mr Black says: "The pace of sales at Asda [this year] has actually surprised us and probably them as well."
Mr Garner says the sustained return of consumers buying premium lines, such as Tesco Finest, may have affected Asda as the economy moves out of recession. He says: "Among consumers, Asda is identified with low prices and if the market moves towards more premium prices then they could be wrongfooted."
For different reasons, questions have been raised about the Co-operative Group's integration of the Somerfield chain, which it acquired for £1.56bn in March 2009. According to Retail Week, a confidential board memo dated 20 April showed that sales have plummeted by 14.1 per cent at the converted Somerfield shops in the most recent month and the business is £25m below budget. While the group intends to rebrand most of the Somerfield stores to the Co-operative by the end of the year, it is still marketing about 400 Somerfield stores separately. However, Co-op said that Somerfield "was and is trading in line with expectations" and that part of the drop in sales is due to it lowering prices. But Bryan Roberts at Planet Retail says Co-op does not seem to have learnt from the mistakes made by Morrisons after it completed the acquisition of Safeway in 2004. He said: "There is a lot of overlap in terms of private [label] brands. They are making a lot of the mistakes Morrisons made in terms of running two businesses."
Perhaps a more unexpected development over the past year has been the industry-leading sales of Waitrose. Much of its growth has come from the launch of its Essentials value range in March 2009.
Overall, however, it is fair to say that with food price inflation having largely fallen out of the sector, all grocers will have to work harder to deliver profits and sales growth this year. More significantly, they face the prospect of weaker consumer spending – particularly on big-ticket non-food products – from measures taken by the next government, such as tax rises, to cut the UK's public sector deficit.
Mr Roberts says: "The whole political uncertainty is going to create a lot of uncertainty and a lot of hesitancy in terms of consumers' spending decisions. A lot of them are still seeing respectable levels of sales on areas such as clothing, but they will be hoping for a good World Cup."
Aldi finds the going tough after the recession ends
It was hard to pick up a newspaper 18 months ago without reading about the "Aldi effect" and how the middle classes were flocking to the German discounter and its rival, Lidl, during the UK recession.
In those heady days, Aldi's sales soared by 25.7 per cent for the 12 weeks to 28 December 2008, while Lidl was up by 11.2 per cent over the same period, according to Kantar Worldpanel. Edward Garner, a director at the research firm, said: "There was almost a recession-chic going around the "Aldi effect" and they got a lot of trial shoppers."
However, it does not seem that many of them wanted to repeat the experience on a regular basis, although Tesco launched a range of discounter products to combat the threat.
The latest Kantar data shows that Lidl's sales increased by just 2 per cent over the 12 weeks to 18 April. Aldi, which has a 3 per cent share of the grocery market, saw sales rise by a more respectable 5 per cent, up from a lacklustre 1.8 per cent reported in March.