Are Britain's big four supermarkets fighting back against the cut-price kings?

The death of the biggest players in British grocery has, it turns out, been greatly exaggerated.

supermarkets

Recently the received narrative has always been that our Big Four supermarkets – Tesco, Sainsbury’s, Asda and Morrisons, to order them by size – have had no response to the rise of European bargain basement upstarts Aldi and Lidl.

It was considered something of a David v Goliath battle; the plucky upstarts were using whatever weapons were at their disposal to overthrow their much larger opponents.

But like an FA Cup giant killing, a small or medium sized business ousting a big business from its place in the market is only exceptional because of its rarity.

Now the Big Four are, in the words of Morrisons boss David Potts, rediscovering their mojo, even if the smaller businesses are still improving their market share.

Morrisons has posted a 2.9 per cent hike in like-for-like sales over the Christmas period, meaning full-yar profits are now set to beat City expectations.

Shares leapt four per cent on the news, with the festive sales cheer also sending listed rivals sharply higher.

Sainsbury’s shares rose two per cent and Tesco leapt four per cent ahead of their updates today and tomorrow respectively.

The figures paint a picture of a sector which is finding its feet amid increased market competition and squeezed consumer spending.

Morrisons’ performance was boosted by shoppers splashing out on its revamped premium range, including macaroons and gold-dusted salmon.

Mr Potts, who has been leading a turnaround since taking the helm last year, said the group also sold 37,000 Santa-shaped butter packs, as well as 7,000 tonnes of vegetables thanks to a three-for-£1 deal.

Sales of its Nutmeg clothing range were up 30 per cent, while its website notched up its best week for sales over the festive period, with online contributing 0.6 per cent to like-for-like growth.

Mr Potts said Christmas saw customers “splash out and trade up”.

He added that while the group remained “firmly in fix mode”, he was “delighted to have found our mojo”.

The chain is pencilling in underlying pre-tax profits of £330 million to £340 million for the year to the end of January, ahead of City expectations for £326 million and a significant rise on the £242 million a year earlier.

Mr Potts said a raft of changes made under a revival plan had helped drive the Christmas sales growth.

“We stocked more of what our customers wanted to buy, more tills were open more often, and product availability improved as over half of sales went through our new ordering system,” he said.

George Salmon, equity analyst at Hargreaves Lansdown, said: “Morrison has taken action on pricing and is now more competitive at the tills, which are ringing more often as the impressive growth in transaction numbers shows. That must be music to the ears of David Potts, who has steered the group to a much more positive position than during the dark days of the last few years.

“In the wake of this positive update from Morrison, all eyes will now be on the sector’s other big players, Tesco and Sainsbury, when they report later in the week. With figures from the BRC painting a positive picture for food sales across the country, hopes will be high that both can follow suit and deliver more positive numbers.”

The attempts by big-name retailers to restore their dominance in the sector have taken many forms.

Sainsbury’s collaborated on a relaunch of bargain food retailer Netto, which ended last year, while all the retailers braced for squeezed margins in order to guarantee cheap food on their shelves.

Ultimately, this Christmas simply saw consumers spending more on food.

Supermarkets enjoyed a record Christmas with sales up by 1.8 per cent, the fastest growth since June 2014.

Consumers spent about half a billion pounds more in December than they did the year before, with more than half the population braving a grocery store on Friday 23rd.

The typical household spend for December reached £365 this year – £52 more than the average month.

Fraser McKevitt, head of retail and consumer insight at Kantar Worldpanel, said: “Year-on-year market growth has been helped by comparisons to a weaker Christmas in 2015, but sales were also buoyed by strong consumer appetite for festive celebration after a turbulent year.”

Less good news for consumers is that the much-vaunted increase in grocery prices has begun to show through on the supermarket shelves.

Like-for-like prices increased by 0.2 percentage points bringing a return to inflation after 28 months of deflation in the market, according to Kantar Worldpanel figures for the 12 weeks to January 1.

Mr McKevitt added: “The long-anticipated return to inflation suggests that the speed of growth in the overall market will continue to hasten in 2017, and both consumers and retailers will be looking at ways to avoid increasing the cost of the weekly shop.”

The big four supermarkets together accounted for 71.4 per cent of market share, with a sales increase of 0.1 per cent.

Year-on-year, Aldi grew sales by 11.8 per cent and market share to six per cent, while Lidl’s sales growth of 7.5 per cent increased its share by 0.2 percentage points to 4.4 per cent.

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Comments for: "Are Britain's big four supermarkets fighting back against the cut-price kings?"

Monkeyhangerjunior

Asda certainly won't last - poor food, poor quality and the Shrewsbury branch is an absolute tip (if you can actually get in and out of the atrocious car park to begin with?

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