The last five years have been a shocker for the big supermarkets. Tesco (LSE: TSCO) is down 46%, J Sainsbury (LSE: SBRY) has fallen 25% and WM. Morrison Supermarkets (LSE: MRW) is off 33%.
Falling customer incomes, shopper dissatisfaction, suspicions of overpricing, the decline of the big weekly shop, convenience store cannibalisation, the great Tesco backlash and the unstoppable rise of German discounters Aldi and Lidl have conspired to sweep the big supermarkets away.
Gimme A Coffee Break
Tesco, Sainsbury’s and Morrisons have tried almost everything to stop the slide, including store closures, shrinking product ranges, in-store partners, and alternatively rushing to set up convenience stores, then rushing to close them down again.
Perhaps the nadir was former Tesco boss Philip Clarke’s attempt to turn a shop at Tesco into a family friendly day trip by adding artisan coffee shops and themed restaurants. Frankly, I want to get into Tesco, and get out again as quickly as possible. I suspect I’m not alone.
But maybe the oldest trick in the company turnaround book is showing some traction: slashing prices.
Hope Springs Eternal
The recent supermarket price war may have been bad for margins, and hasn’t even increased sales. But at least it has slowed the slump. New industry data from Kantar Worldpanel shows Tesco suffering the smallest drop in sales for two years. In this beleaguered market, you have to be thankful for the smallest of mercies.
Tesco’s stock is up 5% over the last month, as investors leap on the any positive news they can find. My concern is that a lot of investors have lost a lot of money doing exactly that.
You can only take hope over experience so far.
Territorial War
Sainsbury’s and Morrisons also appear to have stopped the sales rot, with the latter’s recent performance the most impressive of all, given the depth of its recent travails and relatively high exposure to less affluent northern regions. Sainsbury’s has the advantage of its relatively upmarket status, and exposure to the more affluent south.
Tesco can boast a new boss with the freedom to inflict radical change on its ailing business model, but the danger with his programme of shutting underperforming stores is that it opens the way for Aldi and Lidl to get more boots on the ground.
And that is still the biggest problem facing Tesco, Sainsbury’s and Morrisons. Wherever they turn, Aldi and Lidl are in their faces. One day, the discounters may face a backlash too, but for now, they seem to have caught the mood of a nation weary and suspicious of the old establishment. The worst may be over for Tesco, Sainsbury’s and Morrisons, but it’s hard to say with any confidence that things will get better.