Supermarkets: Co-op, Morrisons, Tesco and Sainsbury’s and Merlin Entertainments

“Gains in European and Asian markets failed to extend to London on Tuesday morning, leaving the FTSE 100 flat at 7,026. Strength among utilities and insurers was offset by weakness in miners and tobacco stocks. Notable macro news included a cooling in China’s producer price inflation for the third month in a row,” says Russ Mould, Investment Director at AJ Bell.

Supermarkets: Co-op, Morrisons, Tesco and Sainsbury’s

“The latest Kantar Worldpanel data suggests an interesting shift in the battle of the supermarkets. Co-op continues to show impressive sales growth with the latest figures revealing a 7% rise year-on-year for the 12 weeks to 7 October. It suggests that previous investment in stores and a revised loyalty scheme in 2016 is now paying off.

“And Morrisons continues to edge higher with 2.4% sales growth over the same period, albeit still lagging the pace seen at Aldi (+15.1%) and Lidl (+10%).

“Supermarkets are challenged with trying to drive up sales volumes without diluting profit margins too much through price cuts and promotions. Morrisons cut back on promotions faster than any other retailer in the 12 week period, albeit it still carries out more promotions than its rivals.

“We’re now heading into the all-important Christmas period where supermarkets go all out to try to get one up on the competition with big offers and new products. As such, Tesco’s board may not be best pleased with its momentum going into the seasonal push.

“The latest 12 week figures show a 0.6% percentage point decline in Tesco’s market share to 27.4% and only a 0.9% rise in sales. The result is somewhat surprising given how much publicity Tesco generated with its Jack’s discount concept launch in late-September.

“Countless column inches and air time drew attention to the broader Tesco group as well as Jack’s and should have acted as free advertising to help get more people into its stores.

“Less surprising is Sainsbury’s mere 0.6% sales growth over the latest 12 week period. The business has been having major issues with stock availability in its stores with countless pictures on social media showing empty shelves, meaning shoppers visiting its stores weren’t able to buy everything they wanted. That’s an awful situation given the wealth of competitors who would be happy to cater for these shoppers.

“Sainsbury’s next set of financial results are out on 8 November and shareholders and customers are going to want answers as to why so many shelves are bare.”

Merlin Entertainments

“Today’s trading update from theme park operator Merlin Entertainments reveals diminishing returns at its Legoland parks from the series of Lego film titles which had boosted interest in the toy brand.

“This part of the business had previously been a big growth driver for Merlin and the flat like-for-like revenue performance reported by the company comes hot on the heels of recent news that Lego sales fell in the UK for the first time in 13 years.

“More encouragingly the company says the impact of the terror attacks in the UK in 2017 is starting to abate and adds it is on course to hit expectations for 2018.

“The market may be concerned by the caveat that the cost environment remains challenging amid tighter global labour markets.

“A growing number of governments with more restrictive policies on immigration and, in the UK, the Brexit process are limiting freedom of movement and this issue could continue to affect large-scale employers of lower wage workers such as Merlin.”

These articles are for information purposes only and are not a personal recommendation or advice.