Christmas is a time for peace and goodwill to all men unless youre fighting for your life in the embattled grocery sector. The supermarkets have been rivenby a costly price warthis year and with discountersAldi and Lidl continuing to gobble up market share, hostilities will only hardenover the festive campaigning period. Can embattled chains J Sainsbury (LSE: SBRY) and Tesco (LSE: TSCO) emergevictorious?
Festive food fight
I fled the grocery battlefield a couple of years ago but have watched Sainsburys admiringly from a distance as it held its upmarket territory against the cut-priceGerman bruisers. Theyears of hard work building brand and customer loyalty havepaid off, whereas Tesco has been punished for its growth-at-all-costs strategy that alienated customers just at the wrong time.
New figures from Kantar WorldPanel published today show Sainsburys the clear winner among the big grocery chains inthe 12 weeks ending 6 December 2015. While total grocery sales rose just 0.1% year-on-year, Sainsburys managed 1.2%, which is pretty impressive giving todays tough conditions. Tescos misery continued, with sales dropping 3.4%, as did sales at Asda. MeanwhileWmMorrison saw a 2% drop in sales.
Tasty!
The dismal performance by its rivals underlines just how well Sainsburys has done to boost sales in this market, which has also slightly lifted its market share to 16.7%. It has now grown faster than the wider market for three months in a row, helped by the popularity of its Taste the Difference range of upmarket foods. With sales of champagne and sparkling wine up by a quarter, Kantar says its successfully tapping into demand for premium goods.
Cantoralso suspects Christmas will be more cheerful for Sainsburys on the back ofits popular Mogs Christmas Calamity advert. It typically does well at this time of year, because of its focus on food, and if it really has cracked the premium food market it should reap the rewards.
Cheap isnt cheerful
Tesco has been hit by the move away from large out-of-town sitesin favour of discounters and convenience stores, but ithas cashed in on the trend foronline grocery shopping withthe success of Tesco Groceries. Yet I can see it losing more ground as people trust more of their Christmas shopping to Aldi and Lidl. Their sales are up5.4% and 17.9%, respectively, year-on-year and they hope to attract 10 million shoppers each over the Christmas period.
The Sainsburys success shouldnt disguise the fact that this is still a really tough sector to be in. Margins are being squeezed as all of the supermarkets cut prices,particularly on staples like eggs and butter, with the cost of everyday groceries down1.9% in the lastmonth. Operating margins at Sainsburys are down to a wafer thin 0.3%, according to Digital Look, while Tesco is in negative territory. Both have been forced to slash their dividends.
A merryChristmas at the tills could set upSainsburys for a happier 2016, but I foresee more seasonal misery for Tesco.
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Harvey Jones 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.
