Should You Buy A Supermarket For Christmas?

March 5, 2018

We’re still six weeks away from the big day, but the competition from retailers to secure that valuable Christmas spending is already heating up. The data releases at this time of year are understandably closely followed, and for those you can invest in, often result in some sharp movements in the share price as investors react to the news. Supermarkets however face a blunt decision - price cuts may attract shoppers through the door, but get the balance wrong and it’s the shareholders who are subsidising any discounts. We look at the five UK grocery retailers you can buy stock in, what the festive season may have in store for them - and what else may be dictating their fortunes.

Tesco

Despite the accounting scandal of a few years ago and the collapse in the company’s share price, this chain remains by some considerable distance the biggest of the bunch in the UK. Having lost some market share earlier in 2017, matters have been picking up since the summer - but when you’re at the top of the tree, the risk is always that those further down the list have easy wins to make. The situation is further complicated for Tesco as it’s in the middle of a controversial takeover of Booker, a wholesale supplier to small convenience stores. Failure to deliver on this in the new year could leave shareholders with a nasty hangover.

 

Share price 1 year ago 205p

Share price today 176p

Analyst forecast 202p

Last reported market share 27.8%

5kg frozen turkey £15.40

 

Sainsbury's

 

The market share won by Tesco since the summer seems to have been at the expense of the country’s second biggest supermarket, J Sainsbury. The company has found itself to an extent stuck in the middle, with customers trading up to the likes of Waitrose, or down to names like Aldi and Lidl, so there has been a keen eye on costs. Some 2,000 job cuts were announced last month - that’s far from looking like festive cheer for the staff affected, but the plan is to use the savings to fund a price war, whilst the company’s recent acquisition of Argos - with outlets being integrated into many stores already - may help win over time pressed shoppers looking for a one stop solution this year.

 

Share price 1 year ago 239p

Share price today 230p

Analyst forecast 267p

Last reported market share 15.7%

Box of 12 Christmas Crackers £4.00

 

Asda

 

Up until 1999, you could buy shares in Asda but the UK’s third largest supermarket was acquired by its transatlantic cousin Walmart, which was keen to get its own slice of what seemed like an unstoppable market. The last couple of years haven’t been pretty for the chain, with Asda being seen as the biggest loser to the German discount chains, but in the summer the first quarterly rise on sales was reported since 2014. Whether this is a result of customers responding to store refurbishments and price cuts, or more a side-effect of rising inflation remains to be seen, although obviously if you invest in WalMart, the fortunes of the US operation will have a significant influence over how the shares perform.

 

Share price 1 year ago $70.50

Share price today $90.92

Analyst forecast $88.54

Last reported market share (Asda) 15.4%

Cheapest bottle of Prosecco £5.00

 

WM Morrison

 

Is this the success story amongst the nation’s supermarkets? The chain floundered badly a couple of years ago, being demoted - albeit briefly - from the FTSE-100 as it struggled to fend off the discount chains, but the appointment of a new chief executive and a shift in strategy has played in the company’s favour A series of supply deals with the likes of Amazon and convenience chain McColls have helped the outlook, in addition to winning back the old client base, but perhaps better than anyone else this shows the importance of innovation in this sector. The last earnings release in September showed a 40% jump in profits and seven consecutive quarters of sales growth - the company will be keen to make sure this becomes eight in a row.

 

Share price 1 year ago 236p

Share price today 215p

Analyst forecast 232p

Last reported market share 10.3%

1 litre bottle of Baileys £12.00

 

Ocado

 

This company doesn’t fit with the usual understanding of a supermarket because by some accounts it’s as much a technology play as a retail one. The company does offer its own delivery service but wants to provide logistical solutions for other retailers. It already run the Morrisons online shopping service, has signed a deal with a mystery European partner and management are promising more of the same, although some question whether Amazon’s purchase of Whole Foods knocks this model.

 

Share price 1 year ago 267p

Share price today 257p

Analyst forecast 311p

Last reported market share 1.4%

Large tin of Quality Street £7.00