The Christmas period is vital for the supermarket industry, and in recent years it has been a race to the bottom in terms of prices, which is great for the consumer, but not so good for the shareholder. 

Aldi and Lidl have acted as major disruptors, and the old guard has been shaken-up.      

Aldi posted it’s best-ever Christmas in the UK as revenue jumped by more than 10% to nearly £1 billion. The group saw the number of new stores increase by 8.5% last year to 827, and the firm aims to have 1,200 outlets in the UK by the end of 2025 – which is an aggressive expansion plan. Since 2010, the deep discount retailer has doubled its market share to 7.6%, making it the fifth largest.

Lidl also had a strong Christmas too as the German company posted a 9.4% increase in sales in the festive period. The group now has a market share of over 5%, and like it’s German rival Aldi, its rate of expansion is far outpacing the ‘big four’ supermarkets.

On Tuesday, Morrisons revealed a 0.6% rise in same-store-sales for the nine weeks until early January, while equity analysts were expecting growth to be between zero and 0.5%. The retailer posted a 2.1% rise in the same period last year, so this week’s update confirmed a slowdown in the growth rate. Total sales growth was 3.6%, and the wholesale division performed well too. The retailer confirmed that it was the fourth consecutive Christmas that (LFL) sales increased, but that still wasn’t enough to win over investors. The supermarket is ‘listening’ and ‘responding’ to customers, and that has helped lift customer satisfaction.

Waitrose has a track record of performing well at Christmas, but not last year as sales in the 12 weeks until late December dipped by 1.7%. The supermarket has traditionally attracted middle-to-high income earners, but it appears the lure of discounts elsewhere, and a cautious consumer environment ahead of Brexit has hurt the group.

Marks and Spencer also attracts above average income shoppers, and the company had a poor performance in the third-quarter. LFL food sales dropped by 2.1%, while clothing and home sales fell by 2.4% .The clothing department has been traditionally a drag on the group, while the food division has been the bread winner, but today’s soft food figures gives cause for concern for investors. The retailer described their performance as ‘steady’ in a ‘difficult’ market, but on the bright side, the transformation plan is ‘on track’. 

Sainsbury’s announced that total retail sales excluding fuel dropped by 0.4%, and like-for-like (LFL) sales excluding fuel dropped by 1.1%. Grocery sales increased by 0.4%, and online grocery and convenience sales rose up by 6% and 3% respectively. Clothing sales dropped by 0.2%, and general merchandise sales fell by 2.3%. The group blamed a ‘cautious’ consumer environment and a deliberate decline in discounting ahead of Black Friday for the poor performance. Retailers are in a difficult position these days, discounting has become so popular, you fall behind if you don’t cut prices, but at the same time, promotions squeeze margins.

Tesco confirmed that UK Christmas sales ticked up by 2.2%, and LFL sales in the UK and Ireland including Booker Group ticked up by 1.9%. British and Irish Christmas LFL sales jumped by 2.6%, both in terms of volume and value – this is encouraging as it suggests the firm didn’t resort to discounting to draw in customers. Low single digit sales growth may not be much, but it puts the firm well ahead of its well-established rivals. Adding to the respectable numbers, Tesco declared it is ‘confident’ in its outlook, and that it is ‘bang on track to deliver’ their plans. 

The rise of Aldi and Lidl are hurting the ‘big four’ and that is why we have seen merger and acquisition activity in the sector. Sainsbury’s are hoping the competition and markets authority will greenlight their planned takeover of Asda, which would put them in first place, should the deal go ahead. Morrisons used its acquisition of McColls to branch into wholesaling, and Tesco did something similar with Booker Group. Tesco have undergone an impressive turnaround under the leadership of Dave Lewis. The German supermarkets are on the march, and the British firms will need to keep innovating in order to keep up.  

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