Growth in sales pushed by higher inflation rather than through volume growth which is anticipated as a direct impact of sterling's fall and higher average fuel prices
Big four supermarkets continued to lose market share to discounters Aldi and Lidl
Morrisons fared best out of big four with major strategic shifts leading to some positive outcomes
Helal Miah, investment research analyst at The Share Centre, comments on the latest grocery market share figures released from Kantar Worldpanel.
The latest grocery market share figures from Kantar Worldpanel made for some interesting reading this morning as it highlighted and reaffirmed some themes in the market that investors should be wary of.
The release from Kantar shows that overall sales amongst the top ten grocers rose by 3.8% year on year, the fastest growth since 2013. However, it seems that this growth in sales is being pushed by higher inflation, up by 2.9% during the 12 weeks to 21 May 2017, rather than through volume growth. Investors will be aware that this was largely anticipated as a direct impact of sterling's fall and higher average fuel prices. With a rise on food spending forced by higher prices, the question arises as to the impact on discretionary spending, other retailers such as clothing, household goods and leisure spending may feel the effects going forward of less disposable incomes amongst consumers. Spending in own brand products has risen by 6% year on year compared to branded products by just 0.6%, this may partly be a reflection food price inflation.
Market shares do however, still present a gloomy picture for the big four supermarkets. Despite sales growth, they all continued to lose market share as both Aldi and Lidl grew sales by an amazing 19.2% and collectively take a 12% market share. Tesco still has the majority market share, but this was down from 28.3% to 27.8%, Asda lost 0.4% to 15.4%, Sainsbury lost 0.3% to 15.9%, while Morrisons lost just 0.2% to 10.5%. Amongst the big four, it seems that only Morrisons fared relatively well. Interestingly, this is the grocer that has suffered most at the hand s of the discounters over the years but it seems as though the major strategic shifts are leading to some positive outcomes. The group saw sales up by 1.9% and has been a good performer in terms of its share price over the last 18 months.
However, these figures show that the big four still face big challenge on maintaining market share. Shopping in Aldi and Lidl is becoming much more acceptable, with 62% of shoppers visited them during the 12 weeks, an additional 1.1 million visits to these stores compared to the same period in 2016. This will only mean the competition will continue to be tough. We currently have a hold recommendation on all three of the listed UK supermarkets. Competition and cost inflation is likely to keep margins under pressure while the dividend income is still a long way off from historic norms.