Monthly Archives: October 2016

Points of View: Food Retail Update

Earlier in the year I wrote about UK food retail and the main issues the “Big Four” UK superstore players have been facing over the past couple of years and, more importantly, how they  intend to fight back against the aggressive drive from the limited assortment discounters (LADs).

We are now almost a year down the line and investors are focussed on whether any progress has been made to tackle the ongoing threats.

Dave Lewis, who took over as CEO of Tesco in 2014 has been working hard to turn around the business. In recent months his strategy has been aimed at reducing their excessive range of stocks, addressing the expensive leasehold commitments by buying back property and selling off non-core assets to strengthen the balance sheet.  Tesco has also been reducing prices (which reduces profit margin) and cutting cost out of the business (which increases margin).  Despite this, the company remains restricted by significant debt and a ballooning pension deficit.

Sainsbury on the other hand has taken a somewhat different path and has recently completed the successful acquisition of Home Retail Group, which most notably owns the catalogue retailer, Argos. With plans to integrate small Argos “concessions” in to their main stores, Sainsbury may have found a productive way to utilise excess space whilst taking advantage of Argos’ successful ecommerce capabilities to boost its online offering. However there are concerns that this will merely distract management from the core business and it will be a while before we see any meaningful results.

Despite the progress the “Big Four” appear to have made in improving their businesses, recent half-yearly results show little to get excited about and sales growth remains broadly flat. Aldi and Lidl continue to gain market share, albeit a little slower than before and with Asda starting a new bout of price cuts the price war is far from over.  The road to recovery remains uncertain.