The discounters about to end Big Four’s dominance

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The era of the Big Four supermarkets may be coming to an end as new research shows that the combined sales of Aldi and Lidl now match number four player Morrisons.

Following double digit sales gains at the two discount supermarkets, the latest Kantar Worldpanel data shows that Aldi has a 6.2 per cent market share and Lidl has 4.5 per cent. Their market share is expected to grow rapidly as both discounters embark on ambitious growth plans.

Meanwhile, Bradford-based Morrisons’ market share has fallen from 11 per cent in January to 10.7 per cent.

All of the Big Four – Tesco, Sainsbury’s, Asda and Morrisons – saw their market share decline as Aldi and Lidl enjoyed a 5 per cent increase in the number of shoppers visiting their stores.

So how will the Brexit vote affect the Big Four and their up and coming rivals? The latest Kantar Worldpanel data indicates that there has been no change in people’s shopping behaviour since the shock vote to leave the EU last month.

Indeed Kantar believes that if the 2008/9 financial crisis is anything to go by, supermarkets will trade steadily as people ditch restaurant meals in favour of fancy dining at home, which will provide a boost to the Big Four’s premium ranges.

However, there is one big difference between the financial crisis and post referendum Britain – sterling has fallen by 10 per cent since the vote.

This is going to make imports a lot more expensive and UK grocers import 40 per cent of their food.

Will this be passed on to consumers? There is every likelihood that some of it will.

Morrisons is likely to suffer the least as it produces so much of its food itself here in the UK. Indeed it could be the German discounters that feel the most pain as they import so many of their products.

In a note out on Wednesday entitled, UK Food Retail: How Will People Eat During A (Brexit Induced) Recession?, analyst Bruno Monteyne at Bernstein said: “Never have consumers spent less on food. Food retail is well positioned into any downturn.

“After three years of food price deflation, food sales constitutes just 12.1 per cent of disposable income, the lowest percentage for 30 years. This should make sales resilient as saving should be easier elsewhere.”

In stark contrast to the Kantar Worldpanel figures, a survey out on Thursday by the Confederation of British Industry (CBI) shows that summer high street sales fell at their fastest pace in more than four years this month.

The CBI blamed weak consumer confidence in the immediate aftermath of the EU referendum, but it warned against reading “too much too soon”.

Sales by grocers and furniture and carpets stores were the main drivers of the drop in overall volumes.

CBI chief economist Rain Newton-Smith said: “While conditions in the retail sector have weakened, we should be careful about reading too much too soon, as consumers were likely to err on the side of caution in the immediate period following a vote to leave the EU.

“Current low levels of inflation and high overall employment should support consumer spending in the near term, although the impact of lower sterling is likely to feed through to higher inflation over time.”

As Mr Monteyne points out, higher food inflation is something that the British consumer really isn’t used to.

Added to this we will see a rise in the cost of imported goods if sterling stays in its current slump – which is likely if the Bank of England cuts interest rates from 0.5 per cent (where they have been stuck since March 2009) to 0.25 per cent next month.

So are there any silver linings? British producers should see an uplift as foreign goods become more expensive.

If shoppers have a monetary incentive to buy British as well as a patriotic motivation, home grown food suppliers could see a welcome fillip.