20 November 2015

With only a few weeks to go until the Christmas festivities, UK consumers are already planning their strategies for purchasing presents for loved ones and making sure they are fully provisioned for holiday food and drink. With this in mind, could seasonality be a catalyst for the UK Supermarkets, giving them an end-of-year boost? Trading so close to 12 year lows, there is potential for not only a Christmas shopping rush to given them a fillip in terms of trade. Traditional year-end bargain hunting could also see their depressed share prices sought out from among this year’s underperformers in the hope that they benefit from a reversal of fortunes and prove successful rebound candidates after a troubled few years.

Both Tesco (TSCO) and WM Morrison (MRW) sit around 30% from the highs of this year and a whopping 50% from those of 2013. Sainsbury (SBRY) is slightly better off, only 10% from this year’s highs but still 40% off its best levels of 2013. These are significant falls compared to the UK Index -3.4% this year and -9% since mid-2013, leading many to ask when we might see such discounts (no pun intended) again? Much of the declines may stem from aggressive price wars with fast-expanding German discounters Aldi and Lidl who this week surpassed a landmark combined 10% of the UK grocery market share. However, other issues including scandal and over-investment (Tesco mostly) have also played their part. After years of fierce competition, could market share losses be set to slow, even reduce, to the benefit of the incumbent trio? Could the UK supermarkets represent an early Christmas present for profit-shopping investors? Time to stock up?

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Sam Springett, Trader