Could Tesco revival damage Asda and Morrisons?

Tesco looks to be undergoing a much needed revival under new boss Dave Lewis.

The UK’s biggest retailer was the only one of the big four supermarket chains to increase sales during November, December and January, according to the latest Kantar Worldpanel data.

Analyst Bruno Monteyne at Bernstein said the latest quarterly Kantar data on apparel provided another glimpse of Tesco’s improvements under the new management and Sainsbury’s continued resilience.

“Tesco saw a remarkable change in UK apparel trading fortunes, much like its performance in food, as it went from losing its most share in 10 years in the period prior to Dave Lewis’ arrival to gaining small share,” said Mr Monteyne.

It looks like Tesco’s revival isn’t limited to cut price vegetables, milk and bread - it’s across the board.

But while Mr Monteyne rates both Sainsbury’s and Tesco stock as an “outperform”, with price targets of £3.30 and £2.35 respectively, the outlook for Yorkshire chains Asda and Morrisons is looking less rosy.

The big question is will Tesco’s revival spell Asda’s and Morrisons’ downfall?

Asda was the worst performer out of the big four, with sales down 1.7 per cent according to Kantar.

This appears to be a classic case of disgruntled Tesco shoppers switching to the number two player Asda when Tesco lost its way, but they’re now switching back lured in by price cuts and a noticeable increase in the number of staff.

Fraser McKevitt, head of retail and consumer insight at Kantar Worldpanel, said that as the second biggest player, Asda is losing out to a resurgent Tesco.

“I think Asda’s problem is the big four. Tesco is doing a bit better so Asda is very much in the firing line,” he said. “The relationship between Tesco and Asda shoppers is strong so more shoppers at Tesco means less at Asda.”

Analyst Clive Black at Shore Capital ​added: “Asda’s slowdown in trading momentum over the last three to six months has surprised us and suggests to our minds that a combination of the improving momentum at Tesco and Morrisons is impinging upon its performance.”

Morrisons put in its best ​​performance in over a year, losing just 0.4 per cent of sales, although Christmas 2013 was a disaster as shoppers decamped to the discounters, making the comparisons flattering.

But the all important figure is shoppers.

Mr McKevitt said that Morrisons has not seen an increase in shopper num​be​rs whereas ​T​esco has attracted an extra 236,000 in the three months to ​F​ebruary 1.​

Morrisons’ former chief executive Dalton Philips has always denied he attempted to take the chain upmarket, but misted vegetables (see our front page story) was seen as just that.

While misting may have been a theatrical gimmick rather than a serious cost, there is no denying that savvy shoppers knew that prices had gone up, part of the appalling yo-yo pricing practised by Tesco and Morrisons whereby the price of goods would escalate wildly, doubling in cost over some months so they could be sold at half price in others.

As Morrisons’ new chairman Andy Higginson has said, shoppers lost trust in the pricing of the big four supermarkets.

“The dialogue with customers has not been honest,” he said.

“Customers have lost trust in supermarket pricing.”

Tesco appears to be winning this battle now - gaining 236,000 customers following the price cuts.

Morrisons has also introduced massive price cuts, but for some reason this is yet to translate into increased customer numbers.

Mr Higginson is expected to announce Mr Philips’ replacement shortly.

He is man who likes to get on with the job and an announcement is expected within the next few weeks, but whoever takes on the top role will have a hard time convincing shoppers that Morrisons has dumped the gimmicks and returned to bargain basement prices.