According to Kantar Worldpanel, UK grocery sales increased 3.2% in the 12 weeks to
25 February 2018, largely due to 2.9% price inflation. Among the Big Four supermarkets, Tesco and Morrisons were in the driver’s seat with 2.7% growth, and
Asda also clocked its best performance since June 2014 (+2.3% yoy).

Sainsbury was the laggard with just a 1.1% uptick during the period.

The top three grocers continued to lose market share in the country.

While Tesco and Asda ceded a 10bp share each (to reach 27.9% and 15.6%, respectively), Sainsbury turned out to be the biggest loser (-30bp to 16.2%). Morrisons’ market share position remained unchanged at 10.6%.

The Big Four were once again outsmarted by discounters Aldi and Lidl (up 13.9% and 13.3%, respectively). The German duo now enjoys a 12.1% share of the UK grocery market (+110bp yoy).

Almost every major UK grocer today has been trying to become leaner and fitter by
reducting store staff positions, adoption of new technology, aggressive shifts towards online (home delivery plus click & collect format), and offering a combination of premium private labels and fresh produce.

However, these initiatives have become the new normal and, hence, are proving insufficient to counter the competitive pressure in a saturated landscape (note that most of the top-line growth is driven by inflation).

Tesco is the only retailer that is reportedly working to launch a new discount grocery chain to take on the low prices of Aldi and Lidl.

However, it is easier said than done as previous attempts by the UK grocers to launch discount brands were not successful.

Throw on top the forthcoming onslaught from the likes of Amazon, which is quickly
ramping up its warehouse infrastructure in the country

We reiterate that Sainsbury remains the weakest link in the current conditions, considering its relatively expensive prices and higher exposure to non-food/ non-performing business Argos – its operational recovery would be difficult as the negative real wage environment continues to put pressure on consumers’ discretionary income in the UK.