Tuesday 28 June 2022

Aldi Heading For ‘Big Four’ As Morrisons And Asda Lose Ground

Given proof that Asda and Morrisons are losing market share as the cost of living crisis worsens, analysts have again raised questions over the impact of private equity ownership on the two chains.

Kantar data for 12 weeks to 12 June showed that take-home grocery sales at Asda and Morrisons had fallen 4.8% and 7.2%, respectively.

As a result, both lost market share as Tesco and the discounters made gains.

Morrisons’ 10.1% share fell to 9.6% YOY, while Aldi is 9%, up from 8.2%. If this trend continues, Aldi will soon take its position in the Big 4.

Richard Hyman on This is Money website said it was now a question of “when, not if” Morrisons falls behind Aldi.

Meanwhile, Shore Capital retail analyst Clive Black said: “It’s not fanciful to suggest that by 2023 Aldi will be the fourth-biggest grocer in the UK.”

The differing fortunes of leading grocers will fuel fears private equity firms are not good stewards as consumers are squeezed by surging inflation.

Asda and Morrisons have been accused of raising prices faster than rivals, and experts say the heavy debt piles picked up during their takeovers give them less flexibility to absorb increasing costs.

Hargreaves Lansdown analyst Susannah Streeter said: “The discount grocers are snatching more customers from Morrisons and Asda, which seem to be falling behind in the competition to cut prices since being bought out.

“They went on a price offensive in April, but as they face an ever-tighter squeeze with costs mounting as they carry heavy debt loads, it’s going to be a lot harder to find room for fresh rounds of price cuts.”

Black also blamed the new ownership of Morrisons and Asda for the decline in sales and market share. He said: “They are profit maximisers and are clinical cash flow people. Whether they are getting the sums right between sales and margins, time will tell.”

The deals saw Morrisons saddled with £5.6bn of debt, while Asda’s buyout was funded with £4bn of debt.

Hyman blamed the exodus of senior leadership since the Issa brothers and TDR Capital takeover.
Hyman said Morrisons underperformance was “a bit more worrying”.

Earlier this month, CD&R’s £7bn takeover of Morrisons cleared its final regulatory hurdle, 8 months after completion. Potts said they could now work with its new owner on the path ahead, with it focused on helping its customers through the difficult economic times.

NamNews Implications:
  • Given the consumer pain coming through the pipeline…
  • …Aldi as No.4 is a running certainty.
  • Asda & Morrisons “carry heavy debt loads, it’s going to be a lot harder to find room for fresh rounds of price cuts”
  • …begging the question: are you giving your major customers the attention deserving of their new ranking?
  • …and acknowledging their differences in business model?

#MarketShares #AldiRank

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