U.K. Supermarket Shares Plunge as Sainsbury Fuels Sales Concern

Britain’s three biggest listed grocers saw more than 1 billion pounds ($1.6 billion) wiped off their collective market value today after J Sainsbury Plc issued a no-growth outlook and fueled concern over dividends.

Sainsbury shares dropped as much as 6.9 percent to 234.1 pence in London, while market leader Tesco Plc fell as much as 4.5 percent to 177.75 pence, both hitting their lowest intraday price since April 2003. Smaller rival Wm Morrison Supermarkets Plc declined as much as 4.7 percent to 156.3 pence.

Sainsbury, the U.K.’s third-largest grocer, said it won’t see a return to same-store sales growth this year as discounters grab a larger share of shopper spending and stoke deflation. Such conditions are likely to persist “for the foreseeable future,” the company said, adding that it may re-examine its dividend policy as part of a strategic review.

Sainsbury, Tesco and Morrison are suffering from the expansion of German discounters Aldi and Lidl, where more than half of the U.K.’s households now shop. Tesco sales are declining at the fastest pace in more than two decades, according to researcher Kantar Worldpanel, while Morrison this month reported a 51 percent earnings drop and said the benefits of a revival plan won’t be felt until later in the year.

“The U.K. food retailing industry has become sleepy and complacent,” Louise Cooper, an analyst at CooperCity in London, said by e-mail. “Consumers are changing the way they shop and the industry has been slow to react to the new environment. The incumbent players have allowed the discounters in due to their complacency. And the discounters are not going away. They are big companies with deep pockets.”

Smaller Baskets

Sainsbury said today that the second half of the financial year will be similar to the first half, when same-store revenue fell 2.1 percent. The share price drop reduced the company’s market value by as much as 336 million pounds to 4.5 billion pounds. Tesco’s valuation declined by as much as 686 million pounds to about 14.4 billion pounds, while the drop in Morrison stock reduced the grocer’s value by as much as 186 million pounds to 3.6 billion pounds.

“The market is the most competitive in 30 years,” Sainsbury Chief Executive Officer Mike Coupe, who took over from Justin King in July, said on a conference call, citing fiercer competition, more frequent shopping trips and smaller basket sizes.

The growth of Aldi and Lidl has changed the British grocery landscape. The two companies together command an 8.3 percent share of the market, researcher Kantar Worldpanel said last week, up from 6.7 percent a year ago. Aldi this week reported a 76 percent gain in annual profit in the U.K. and pledged to invest 600 million pounds over two years to further expand its share at the expense of the traditional supermarkets.

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