RUTH SUTHERLAND: Supermarkets are set for another tough year – and if Amazon makes a big play on groceries, all bets are off
This year is shaping up to be a white-knuckle ride for the supermarkets. Tesco, Sainsbury’s and Morrisons will reveal this week how their trading went over Christmas.
It’s not likely to be happy reading.
There will also be trading figures from M&S, in its first Christmas since being expelled from the FTSE 100. A changing of the guard at the top of the grocers is under way.
Dave Lewis, the man who orchestrated Tesco’s turn-around is stepping down later this year
Dave Lewis, the man who saved Tesco from oblivion when it ran up a £6.4 billion loss five years ago, is stepping down and will be replaced by Ken Murphy, a low-profile executive from the Boots chemist chain.
Morrisons recently promoted its finance boss, Trevor Strain, to chief operating officer, positioning him to take over from top man David Potts, who has led the recovery at the Bradford-based grocer.
At Sainsbury’s, Mike Coupe’s position has been weakened by the failure of his planned merger with Asda last year.
The succession may be complicated by the fact one of the leading contenders to take over, Argos boss John Rogers, left to join advertising giant WPP.
But whoever is in charge by this time next year will be facing enormous, and seemingly intractable, strategic challenges.
Sainsbury had hoped that the £14bn merger with Asda would give it the buying power to push down prices at the tills and enable it to better compete with the German discounters, Aldi and Lidl. The competition authorities had other ideas.
Now Asda’s American owner Walmart is considering a London stock market float of its UK business.
Sainsbury’s is left without any obvious plan. Its shares have fallen 11pc in the past 12 months and new chairman Martin Scicluna will want to see rapid improvement.
Dramatic cost-cutting is on the agenda but it will take more than that. Sainsbury’s really needs to convince investors that it has a future on the High Street with a compelling story about how it can grow, not how it can manage decline.
Similarly, Morrisons’ strategy is: ‘Fix, rebuild and grow.’
It has achieved the first two under Potts, who orchestrated a recovery after being hired in 2015, but its share price has been flat over the past year.
As for Tesco, its shares are up by a third in 2019, but over ten years it is down around 40pc, despite the turnaround under Lewis who took it from enormous losses to £1bn plus profits.
The question, however, is whether there is much more improvement to be had when Murphy takes over.
And let’s not forget poor old M&S, which has endured an absolute annus horribilis.
It is showing some signs of growth in its food business but the big test will be the success of its joint venture in online groceries with Ocado, a stock market star.
M&S chairman Archie Norman – the latest in a long line to have tried to revive the much-loved business – has made a bold move with the Ocado tie-up, but one that has been greeted with scepticism.
Britain’s food retailers are in for another tough year.
They have to manage Brexit and its effects on supply chains at a time when many families’ purse strings are still tight.
They have to work out what on earth they are going to do about the competition from Aldi and Lidl.
Several years ago, one former supermarket chief dismissed the German duo, saying discounters never made very big inroads into the UK market. He should now be eating his words.
And we haven’t even mentioned Amazon. If the US giant makes a big play for British grocery shoppers, all bets will be off.