According to market research organisation Kantar Worldpanel, Asdas sales fell 3.5% during the 12-week period to 8 November and its market share declined 0.7% compared to a year ago.
Asda was the weakest performer of the big four, but Tescos (LSE: TSCO) sales dropped 2.5% and WM Morrison Supermarkets (LSE: MRW) eased by 1.7%. Then there is J Sainsbury (LSE: SRBY)
Leading the defence of the old guard
Sainsburys fared much better. The firm saw its fourth consecutive period of growth with a 1.5% lift in sales and a 0.2% increase in market share according to Kantar Worldpanel, thats the first market share gain posted by any of the big four supermarket chains since October 2014.
Such market dynamics mean that over the latest 12-week period, Sainsburys has managed to regain its position as Britains second largest supermarket. Asda, meanwhile, slips to third place. In the good years, before the sectors recent upheaval and price wars, Sainsburys put in consistent growth in earnings and seemed to be executing its operations more efficiently than its rivals.
However, skirmishes between the big four supermarkets look like a sideshow compared to the structural war waging between the established supermarket empires and discounting upstarts Aldi and Lidl.
Market share doubles over three years
With blistering rates of sales growth measured in the high teens, for the first time Aldi and Lidl have achieved a combined 10% share of the British grocery market. That must be a sobering thought for anyone holding shares in the London-listed supermarkets right now.
Kantar Worldpanel reckons that just three years ago in 2012, Aldi and Lidls market share was 5% so we have seen a doubling over three years. Before that, it took the discounting pair nine years to double their share of Britains grocery shop from 2.5%.
I have thought for some time that Aldi and Lidl might accelerate their rates of growth. Word of mouth spreads like wild fire, and a combination of rock-bottom prices and top-notch quality seems to be working as a strategy, particularly as expressed in Aldis own-branded merchandise.
Its tempting to speculate about how long it will take Aldi and Lidl to double their market share again from here. The pair plan to open hundreds of new stores in Britain, and my guess is that those stores will be as packed with customers as the ones they already run.
Losing the structural war
Aldi and Lidl are disrupting the traditional supermarket industry and we could see some once-mighty empires fall. Look at Tescos shrinking profits, for example. The firm made a pre-tax figure of 4,038 million year to February 2012 and that is set to fall to 629 million or so during the current year before recovering to 986 million during year to February 2017. That is a profit recovery of sorts, but is that kind of growth rate in earnings sustainable? I doubt it. It would be surprising if the firms drastic turnaround measures didnt have any effect at all in the short term, but the profit bounce-back looks like a one-off factor to me.
As I see it, the big problem over the longer term is the rise of competition from Aldi and Lidl. The more those discounters take market share from the likes of Tesco, Sainsbury, WM Morrison and Asda, the harder it could be for those big firms to turn a profit. The big four have large, expensive operating structures, which are beginning to look like the wrong kind of business model for todays evolving grocery market.
In my view, Tesco, WM Morrison, J Sainsbury and non-listed Asda are losing the structural war in the supermarket sector, and thats why it could be time to ditch their shares.
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Kevin Godbold 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.