Today I am explaining why intensifying competition should keep driving sales at Tesco (LSE: TSCO), Sainsbury’s (LSE: SBRY) and Morrisons (LSE: MRW) to the downside.
Premium sellers on the charge
The story of the supermarket ‘price wars’ has been one of the major business stories of the past year, a tale that has given the seemingly invincible retail behemoth Tesco one heck of a bloody nose — as much a £1 in every £7 spent by British consumers went into the Cheshunt firm’s checkouts as recently as 2007.
While it is true that discounters like Aldi and Lidl have been the chief disruptors to the established chains’ chokehold on the market, investors should not underestimate the devastating impact being made by the premium outlets.
Just today Waitrose announced in a bubbly trading update that it was planning to create an extra 2,000 jobs in 2015 alone as it opens a raft of new stores and extends the size of existing outlets. The retailer was boosted by a 2.8% uptick in like-for-like sales over the Christmas period, a direct contrast to Tesco, Sainsbury’s and Morrisons which all saw underlying sales dive.
Of particular worry for these firms, Waitrose’s expansion plans overlap the scorching online and convenience store sub-sectors, the only bright spots for the three fallen giants as superstore activity continues to drag. Of the 14 new stores Waitrose plans to open this year, the company’s Little Waitrose outlets will comprise half of these.
Meanwhile, Waitrose is looking to maintain the breakneck momentum witnessed at its online division, where sales surged an impressive 26.3% during the festive period. The business is looking to open a new online distribution centre in Coulsdon, London in March, which is double the size of its soon-to-be-defunct facility in Acton.
But Tesco et al’s declining popularity with affluent customers extends far beyond Waitrose. Fellow FTSE stalwart Marks and Spencer — which posted record sales during the Christmas period — plans to open 200 new Simply Food shops over the next three years, up from the 150 planned previously, it announced in November. And Aldi and Lidl are also bulking up their ranges of luxury items to win favour with wealthier consumers.
As shoppers across the social spectrum continuing to desert Sainsbury’s, Tesco and Morrisons in their droves, I believe that investors should look elsewhere if they are looking for decent growth prospects.