Morrisons and Tesco ‘give cause for concern’: City analyst

17-Feb-2014 - Last updated on 17-Feb-2014 at 13:48 GMT

Morrisons and Tesco gave Shore Capital analysts cause for concern, after recent market share losses revealed by Nielsen data

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Morrisons and Tesco were “the clear laggards” among the four big supermarkets, while discounters and premium sellers continued to do well, according to City analyst Shore Capital, commenting on recent Nielsen market share data.

The abnormally wet weather and consumer cost cutting had contributed to falling sales at UK supermarkets for the 12 weeks to February 1, revealed Nielsen. Aggregate sales value growth during the four weeks ending February 1 fell marginally by 0.4%, while year-on-year unit sales fell by 3.2%.

Shore Capital analysts Clive Black and Darren Shirley said the Nielsen data made “for disappointing reading”, with Morrisons’ sales in the 12-weeks to February 1 down by 3.6%, compared with the 2% fall recorded in the 12-weeks to January 4.

Tesco UK’s sales were said to be down by 1.9%, compared with a fall of 0.6% in the previous 12-week period. “Accordingly, Morrisons’ market share is said to be 11.0%, down from 11.6% year-on-year, while Tesco slips to 28.2%,” said Black and Shirley.

‘Particularly weak’

“In the four week period, we calculate that Morrisons’ and Tesco UK’s like-for-like sales may have been particularly weak; maybe -7% for Morrison and perhaps as weak as minus 5% for Tesco with same-store volumes lower still.”

The performances implied a very poor start to Morrisons’ new financial year and a very weak end to Tesco UK’s, they added. That meant further downgrades to profits and earnings cannot be ruled out.

Black and Shirley said four key factors were combining to pressurise supermarket sales. “It is our view that ongoing processes of active food waste management, smaller and more frequent shopping visits, disciplined purchasing and a broad eschewing of promotions continues to depress demand in the UK supermarket scene.”

‘Out of tune with the UK consumer’

“Furthermore, the brand pulling power of the major players seems to be particularly out of tune with the UK consumer at this time.”

Of the big four supermarkets, Sainsbury continued to perform “the most robustly”, said Black and Shirley. In the 12-weeks to February 1, Sainsbury sales grew by 1.6%, down on the 2.1% recorded in the previous 12-week period to January 4. But, after accounting for sales from new stores and inflation, Sainsbury continued to endure like-for-like volume contraction.

Hard discounters were continuing to achieve very strong growth, while premium retailers, such as Waitrose, were outperforming the market. Marks & Spencer achieved 2.4% sales growth in the 12 weeks to February 1.

Meanwhile, Mike Watkins, Nielsen’s UK head of retailer and business insight, said shoppers were switching to cheaper grocery brands.

“Despite the improving economy, UK consumer confidence actually dropped in the final quarter of 2013, indicating that it’s a shallow recovery in shoppers’ minds,” said Watkins. “Over half, 55%, of consumers report switching to cheaper grocery brands to save money, so the record levels of January rainfall may have further dampened shoppers’ spend at a time they’re already actively cutting costs.”

Nielsen’s Consumer Confidence Index in the fourth quarter of last year also revealed that more than one third (37%) of consumers planned to continue switching to cheaper grocery brands even when economic conditions improve.

Last week, Morrisons’ management refused to confirm or deny press reports of a buyout by the founding family.