Weary investors in beleaguered supermarket Morrisons (LSE: MRW) were given a rare opportunity for cheer this week following news of a belated sales improvement. According to Kantar Worldpanel till activity at the grocer edged 0.1% higher in the 12 weeks to May 24, the first positive result since December 2013.
Kantar noted that “a committed core of loyal Morrisons consumers is responding positively to recent initiatives and business has been boosted by online sales.” However, the researcher added that “Morrisons’ performance is an improvement on what was a difficult May 2014, so this is only the first step in any future recovery.“
Indeed, this latest result is hardly reason for giddy celebration given that the firm has thrown the kitchen sink at reviving its sales performance. From introducing round after round of price slashing, through unveiling a new loyalty scheme and bulking up the headcount on the store floor, Morrisons is yet to find the formula to stop the bulk of its customer base evacuating en masse.
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Middle ground stuck in the mire
But the Bradford-based firm is not alone in this respect, and Kantar’s release underlined the pressure being experienced across the mid-tier supermarket space. Fellow FTSE rivals Tesco (LSE: TSCO) and Sainsbury’s (LSE: SBRY) saw sales drop 1.3% and 0.3% respectively during the three-month period, while Asda was the worst performing among the bunch — revenues here dipped 2.4%.
While Tesco’s expensive discounting programme brought some relief towards the back end of last year and in the spring, this initiative seems to have now run out of steam as Britain’s established grocers still cannot get close to the value offered by the discounters. This is illustrated by Aldi’s barnstorming 15.7% sales uptick up to May 24, while Lidl’s 8.8% rise drove its own market share to a record 3.9%.
Online operations fail to boost sales outlook
So the march of the budget chains leaves Morrisons, Sainsbury’s and Tesco frantically cannibalising each others’ customer bases in a rapidly-decreasing segment of the UK supermarket space.
It’s true that the accelerating popularity of online shopping still provides the established chains with some optimism for earnings growth. But these businesses are also competing with premium outlets like Ocado and Waitrose, which are also dragging shoppers away from the traditional supermarkets, while Aldi is also flirting with the idea of Internet sales in the coming years.
When you take into account the discount sector’s ambitious store expansion plans planned for the next decade, and the fact that Tesco, Sainsbury’s and Morrisons are all putting the kibosh on their own expansion plans owing to enduring revenues pressures, it’s hard to see the earnings picture for the latter businesses improving any time soon.
