Future of tesco, morrisons

planteria

"Nobody is a winner in the supermarket discounting war
By Jessica Furseth | Wed, 11th June 2014 - 12:09
Nobody is a winner in the supermarket discounting war For the first time in six years, Britons are buying less food. In the past three months, total food sales declined by 0.2%, according to data from the British Retail Consortium and KPMG, putting the squeeze on the food retailers to maintain growth in a tightening market.
"The grocers appear locked in a race to the bottom, imposing price cut after price cut to maintain their sales volumes," said David McCorquodale, head of retail at KPMG.

Tesco (TSCO) reported its worst sale figures in 40 years last week, and on Wednesday Sainsbury's (SBRY) announced its second consecutive quarter of sales decline. The other two major UK food retailers, Morrisons (MRW) and Asda (owned by Wal-Mart), have also taken hits to their sales figures.

The slump in food sales meant the growth in like-for-like retail sales across the sector fell to 0.5% in May, compared to 4.2% in April and 1.8% growth in the same month last year. The upside comes from sales of non-food items, which are up more than 4% over the last three months, according to the British Retail Consortium and KPMG.

Appetite for discounts

"This price war is hindering the retail sector's overall recovery, which without the effects of these cuts would have seen like for like sales growth outpace inflation over the last quarter," said McCorquodale.

The pattern that's emerging for supermarkets is that customers are on high alert for price, while at the same time searching for quality goods. Supermarkets are producing increasingly high quality food, but ongoing discount campaigns is starting to take its toll.

McCorquodale acknowledged that this is providing the UK consumer with plenty of options in the short term, but added: "The constant price matching brings into question the long term value of the grocers' brands and positioning."

This view is reflected in a recent survey by The Institute of Grocery Distribution, which suggested that discount retailers will see growth of 65% between 2012 and 2017. So far, discount retailers Aldi and Lidl are bucking the trend among the "Big Four" retailers.

Morrisons has promised to cut prices for everyday essentials by 17% on average, as the chain commits £1 billion to the battle for market share. Morrisons reported a £176 million loss in its March's results announcement, and warned that profits in the current year would be less than £375 million, about half the level of last year.

Morrisons has been accused of being slow to the game of loyalty offers and convenience locations, and only started online deliveries last year, through Ocado.

Earnings uncertainty

The conclusion from JPMorgan Cazenove analysts Jaime Vazquez and Borja Olcese is that the uncertainties over growth that have dominated recent earnings announcements from Sainsbury's and Tesco are obscuring the earnings visibility for the retailers over the next few years.

"Sainsbury is performing better than Tesco and Morrison, but we believe will suffer from a potential gross margin re-set led by Tesco," said the analysts in a research note.

"For a given trading profit margin, we would have preferred to see no gross margin expansion and better cost control. But with declining sales densities, this is difficult to achieve."

JPMorgan Cazenove maintains an "Underweight" rating on all three UK supermarket stocks."

http://www.iii.co.uk/articles/171953/nobody-winner-supermarket-discounting-war

innovate

Tesco downgraded again by Moodys

http://www.telegraph.co.uk/finance/newsbysector/epic/tsco/10904147/Tesco-credit-rating-cut-again-by-Moodys.html

Glen_Clark

Tesco recommended by Questor and commentators at £3.93: http://www.telegraph.co.uk/finance/markets/questor/8461663/Questor-share-tip-Tesco-falls-a-buying-opportunity.html

planteria

it sounds about right to me Glen, but maybe they will become even better value.

and, despite the much simpler model, i still wonder whether Morrisons offers better value still.

Glen_Clark

Interesting article on who is holding supermarket shares: http://www.telegraph.co.uk/finance/personalfinance/investing/shares/10911388/Should-you-still-be-buying-into-supermarket-shares.html

scragend

Glen_Clark wrote: »

Tesco recommended by Questor and commentators at £3.93: http://www.telegraph.co.uk/finance/markets/questor/8461663/Questor-share-tip-Tesco-falls-a-buying-opportunity.html

The general rule of thumb with Questor is that if Questor says buy, don't. If Questor says avoid, then buy.

Questor is hopeless.

Glen_Clark

scragend wrote: »

The general rule of thumb with Questor is that if Questor says buy, don't. If Questor says avoid, then buy.

Questor is hopeless.

I always thought Gary White's face looked puffed up as though he has had a lot of drink.
But we have a new Questor editor now. I don't know if he is any better?

Ifts

Lidl is to create 2,500 new jobs as it continues to grow across the UK....

http://www.thegrocer.co.uk/companies/discounters/lidl/lidl-to-create-2500-jobs-in-uk-expansion/359021.article

gt94sss2

Tesco have just announced a profits warning and that their chief executive Philip Clarke is to leave. (official announcement)

Regards
Sunil

antrobus

February 2011 - Morrisons buys Kiddicare for £70m in order to give it the know-how to sell clothing and homewares online

July 2014 - Morrisons sells Kiddicare for £2m and reassures shareholders that this figure will be enough to cover all the costs associated with exiting the business

http://www.theguardian.com/business/2011/feb/15/morrisons-buys-kiddicare-seventy-million

http://www.telegraph.co.uk/finance/10967104/Kiddicare-sold-for-2m-to-Endless-private-equity.html