Grocer price war to hot up after fair Xmas

19/01/2006 23:58

By Trevor Datson, European Retail Correspondent

LONDON (Reuters) - Christmas trading figures from the country’s top supermarkets have shown the sector is in reasonable health, but also point towards an intensification of the already fierce competition in the year to come.

From the top down, it was mighty market leader Tesco that delivered the best same-store sales growth of all the main players for the fourth year in succession, as like-for-like sales excluding fuel rose by 5.7 percent.

This was slightly better than its third-quarter figure of 5.5 percent, and once again represents an impressive period of growth on growth -- the year ago figure was 7.6 percent.

But for once, Terry Leahy’s seemingly unstoppable retail machine did not beat analysts’ forecasts of between 5 and 6 percent, and some observed that with non-food lines growing twice as fast as the core food ranges, Tesco’s performance in food was not as stellar as it seemed at first sight.

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Of No. 2-ranked Asda, part of the huge Wal-Mart empire, the market knows little as yet, other than that Chief Executive Andy Bond said it had done better than fourth-placed Wm Morrison .

If it only did a little better, as recent noises from the Leeds-based company’s headquarters would suggest, then Asda will have lost further market share to Tesco and No. 3 J Sainsbury , meaning an escalation Bond recently announced in the grocery price war could be a bloody affair indeed.

One London-based analyst said that could threaten margins this year -- the supermarkets had hoped for an easing in the price deflation that has seen 1 to 2 percent shaved off their top line in each of the past three years.

"There should be less price deflation in 2006 unless Asda goes mad, suppliers will be wanting to push through the price inflation they’re experiencing. It will anyway be much more competitive and everyone has a rising cost base," the analyst said, referring to higher energy costs and business taxes.

ICELAND WINS COD WAR

Perhaps Justin King of Sainsbury will be the retail boss coming out of the festive season with the biggest smile on his face. Sixteen months into his "Making Sainsbury Great Again" recovery programme, his charge beat market forecasts with a 5.2 percent increase in same-store sales.

Some analysts argued this was in some ways a stronger performance than Tesco’s 5.7 percent, since Sainsbury has a much lower reliance on non-food lines and that growth in food sales is more valuable since it varies less across the economic cycle.

"Its food like-for-likes must be stronger or at least in parity with Tesco," another analyst said, adding that King’s comparatively weak sales last year gave him an easier ride.

"Sainsbury had a relatively easy base, while Tesco was achieving growth on growth -- on growth," he said.

On the other hand, the Sainsbury data was for the third quarter as a whole, and not just for a few weeks over Christmas, a time when consumers are known to spend more on food.

Morrison’s acquisition of the Safeway group in 2004 rendered its headline growth figure of 2.8 percent almost meaningless. Core Morrison stories remaining from before the takeover were down, while Safeway stores recently converted to the Morrison format showed a predictably strong 9 percent growth.

However, analysts were most pleased at the 5.7 percent growth in former Safeway stores now in their second year since conversion -- signifying as it does that there may be life in the new format yet.

Fifth-placed Somerfield, recently taken private by venture capitalists, has remained tight-lipped on Christmas trading, but market share data from research firm TNS suggests a flagging overall sales trend.

One foodseller that normally does well at Christmas is Waitrose , whose upmarket lines attract more custom at that time of year. Its 6.2 percent same-store sales improvement could have been the cream of the crop.

But in percentage terms, that accolade was taken by Iceland, whose dismal performance at Christmas 2004 was perhaps the main factor behind a 16.1 percent improvement in like-for-like sales in December.

Overall, there was little sign of the retail meltdown some commentators had feared over Christmas. In fact, the overall spend at grocers increased by 4.2 percent in December, according to TNS -- easily outstripping inflation.

"It’s been fairly good over the actual Christmas period -- but everyone believes it’s going to pretty competitive into 2006," the first analyst said.