Supermarkets are among the fallers as Morrisons announced a number of price cuts, escalating the war between the established food retailers and also reacting to the growth of discounters Aldi and Lidl.
Morrisons said in March it would invest £1bn over three years on lower prices, and now it has cut the cost of 200 items.
Not only are the supermarkets having to deal with increased competition, but food price deflation is also hitting their business.
Meanwhile analysts at HSBC have issued a note on the sector, with a reduce rating on Morrisons and Sainsbury - ahead of this week’s update - but a buy note on Tesco. HSBC’s David McCarthy said:
Sainsbury’s first quarter trading statement [is] due [on] 10 June: Based on Nielsen market share data, which show Sainsbury’s sales were flat in the last 12 weeks, we expect ex-petrol like for like sales down 1.5-2%, offset by new store sales, leading to flat overall sales (ex petrol). We continue to view Sainsbury as fragile, given its weak balance sheet and with operating margins likely to continue trending down.
Market share data from Nielsen show Tesco’s sales were down 1.7% in the last 12 weeks, but this is impacted by store closures announced early this year and which have now taken place, and by the high use of aggressive vouchers in the first quarter last year when the previous management tried to prop up sales. On a true underlying basis, we believe Tesco’s like for like volumes are still heading in the right direction and that the company is on track to meet its profit targets for the year. This may be unspectacular in the short term, but we believe Tesco is following the right long-term strategy.
Morrisons...is now trading against easier comps given its aggressive price investment last year and weak trading during that time. The new management team is in place and there are some relatively easy wins for the new chief executive.
Morrisons is down 1.9p at 171.7p, Sainsbury is 1.8p lower at 245.4p and Tesco - despite the HSBC buy recommendation - is 2.8p lower at 203p.
