The upmarket supermarket chain’s premium offering would benefit from the squeeze on the middle market by the success of premium players and the strength of discounters such as Aldi, said Shirley.
“… We sense that management … will stick to its principles and processes, so allowing Waitrose to become more mass market but not necessarily mass market and, as such, the grounds for a business of c£12bn sales within 10 years (non-inflated and excluding dotcom) is far from fanciful.”
Waitrose chalked up gross sales of £5.76bn in the year to January 26, 2013. Like-for-like annual sales, excluding petrol, rose by 3.4%. Operating profit increased by £31.7M to £292.3M, up 12.2%.
Shirley was inspired to sing the retailer’s praises in an analyst note after sampling a preview of its 2013 Christmas food range.
He cited Waitrose boss Mark Price at the event referring to “a two-speed market where the ‘haves’ are a little more confident and showing signs of trading up whilst the ‘have-nots’ are finding things tougher”.
Shore Capital analyst Clive Black echoed Price’s comments in a subsequent note on UK consumer confidence, stating that “higher consumer confidence may be reflected in increased evidence of trading up ... helping premium and leading brands over value and volume”.
“As such, there may also be a contraction in promotional participation, arguably assisting manufacturers’ margins to some degree; as may lower and more stable oil prices and core crops.”
Momentum ‘more upwards than downwards’
At the same time, the momentum was “more upwards than downwards” added Shirley.
“Within this overall market Waitrose continues to materially outperform the sector … we sense the market is growing at c2–3% and Waitrose is expanding at 8–10%, sometimes more.
“Waitrose is joined by Aldi and Lidl as strong outperformers but also Iceland and Marks & Spencer. As such there is a bar-bell food market with the deep discounters and premium players outperforming the superstores.”
Shirley forecast Waitrose had room to grow supermarket and convenience store sales space by about 4% a year, with Birmingham, Aberdeen and Liverpool offering potential for that.
Of all the other supermarkets, he said, Sainsbury would likely be the most exposed to the competition.
Despite the Morrisons-Ocado tie-up, in which the supermarket acquired the online venture’s distribution centre and vowed to start online sales by 2014, Waitrose would protect its interests in Ocado and build its capability online, said Shirley.
High single digit growth
Meanwhile, an analyst note from multinational bank Morgan Stanley reported Waitrose’s management as claiming like-for-like sales growth for the latest quarter in the high single digit range.
That compared favourably to -1.0%, +0.8% and -1.8% performance for Tesco, Sainsbury and Morrisons sales respectively in their latest financial quarters.
According to Waitrose, its success was a result of gaining market share and “an improving UK consumer”, Morgan Stanley stated.
The bank said the grocery retailer’s management also claimed reducing the price gap between it and Tesco and Sainsbury by 500 base points over five years had made a big difference.
A key focus for Waitrose would be to transform existing customers who use it as a top-up shop into primary shoppers, Morgan Stanley added.
It said Waitrose remained undecided on the question of whether it should move away from its main position to a more mass market offering.