Grocers have little to cheer from Aldi numbers

Equities

There is little to cheer in the Aldi numbers for the UK’s big grocers. Shares in Tesco (TSCO), Sainsbury’s (SBRY), Marks & Spencer (MKS) and Morrisons (MRW) were all notably softer after Aldi delivered a disappointing Christmas trading update. Whilst we should always take numbers from private companies with a pinch of salt, the performance does not suggest that the big 4 listed supermarkets experienced a tremendous festive bounce. 

In the four weeks to Dec 24th, sales at Aldi rose 7.9%, which was below the 11% rate we saw across the whole of 2018. It also fell short of the 10% in the same period of 2018. Like-for-like sales were said to be positive but no figure was provided – for sure almost all the growth is coming from new stores. We know that margins are being hit hard too as it a) expands and b) keeps prices down. 

Investors are braced for a lacklustre Christmas for the big 4 listed supermarkets, but this points to arguably a bigger slowdown than had been expected. If even the discounters are seeing growth rates decline, we should expect similar for the larger names – it is hard to imagine they are picking up market share back from the Germans. Moreover, if Aldi’s growth slipped despite 47 more stores operating at the end of 2019 versus the start of the year, we should expect a poor Christmas performance across the piece. 

The election may have had an impact, shortening the period in which UK consumers were prepared to splash the cash on groceries for Christmas. Undoubtedly the election will have reduced the overall spend in Dec – the question is just how much.

Dates for the diary 

Jan 7th – Morrisons Christmas trading statement – could be tough – particularly in retail which has been underperforming with the overall numbers held up by solid wholesale performance.

Jan 8th – Sainsbury’s Q3 trading update  – Signs that the worst may be over as management take their heads out of their Asda deal and refocus on core grocery division. LFLs have just about started to head in the right direction again.

Jan 9th – Tesco Q3 and Christmas trading update, Marks & Spencer Q3 trading update. The former is likely to do OK but serious question marks over whether Marks can deliver on the food front. More worrying for Marks is Clothing and Home which the Nov update showed were in a real mess. Could be grim.