In its attempt to recover its old glory, Tesco (LSE: TSCO) has been closing stores and mothballing and selling off redundant sites. J Sainsbury (LSE: SBRY) and Wm Morrison Supermarkets (LSE; MRW) have been tightening their belts too, with the latter retreating from the convenience store market (which it was pretty late to get into anyway).
But thats leaving the way clear for Lidl and Aldi and their aggressive expansion plans. In fact, the two upstarts are planning to open five times as many new stores as Tesco, Sainsburys, Morrisons and Asda combined!
This year alone, according to a study carried out by Barbour ABI for The Sunday Telegraph, Aldi has submitted planning applications for 93 new stores while Lidl is going for 78 the big four have filed just 29 planning applications between them.
Of course, its a lot easier to expand quickly if youre starting from a much smaller base, as Tesco itself did in its early days. Consumer data group Kantar Worldpanel currently estimates Lidls share of the UK grocery market at a modest 4.3%, with Aldis a bit higher at 5.6% but Aldi has already leapfrogged Waitrose, which has 5.2% of the market.
Compared to that, Tesco is still way out in the lead with a 28% share of the market, and thats not all that far from its 32% peak of a few years ago. The big difference, of course, is that Tescos margins have been severely eroded as it has been forced into a price war with the two discounters and its a price war that surely has some distance to go.
Tescos EPS is forecast to slump by a further 40% in the year to February 2016, following on from a 70% plunge recorded this year. Theres a substantial rebound predicted for the following year, but Im not yet convinced.
Back to normal?
Many were expecting to have to wait a few years until the same good-old Tesco got its traditional sales model back on track, recapturing the middle of the market and getting back to expansion once Lidl and Aldi had soaked up all of the low end of the market they were going to get while recessionary belt-tightening was on. But I reckon there are two things wrong with that scenario.
Firstly, I see a step change in the shopping habits of UK consumers, who are starting to see Aldi and Lidl produce as just as good as anyone elses but at lower prices and not lower quality stuff for the less well off. Secondly, Lidl and Aldi are moving upmarket, with things like good wines, champagne and lobster in their stores.
The Christmas shopping period should prove to be an important chapter in the supermarket story, and if Tesco, Sainsburys and Morrisons dont show significant improvements over last year, I can see share prices falling further in the New Year.
Among the best
And on that score, Aldi came out pretty well in the BBC Good Food Magazines Christmas Taste Test, winning four of the 34 categories with its 2.99 pack of six mince pies beating Fortnum & Masons 13.95 offering!
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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.