Are any of the UK’s ‘big four’ supermarkets capable of a full recovery?

Over the past two years, the UK’s once great ‘big four’ supermarkets have spectacularly fallen off the food retail ladder, whilst budget stores such as Aldi and Lidl continue to climb to the very top.

Once shoppers began to opt for the cheaper option, the price wars amongst ASDA, Sainsbury’s, Tesco and Morrisons began. Product prices were slashed in an effort to regain lost customers, but as budget stores’ sales continually grow, is it too late for the ‘big four’ to reign the food retail market once again?

Tesco

Let’s start with the grocery market leader in the UK, Tesco. At the beginning of the year, the supermarket chain reported the worst results in its history, with a record pre-tax loss of £6.4bn for the year to the end of February.

At the halfway point of this current financial year, Tesco reported underlying profits were £354m, which is also a 54.6% loss from last year’s £779m. Due to a dismal 2015, Tesco has been forced to close a total of 53 stores nationwide and significantly reduced the amount of new store openings.

To counter this, Tesco is currently undergoing a ‘restructuring’ period, in which the chain has been able to reduce its debt by £4.2bn, with the sale of its Homeplus stores in South Korea earlier this year. Investment into the restructure of the supermarket is also expected to deliver £400m annual cost savings.

Although Tesco is taking measures to stage a full recovery, with such a big drop in profits and a mountain of debt to deal with, can the company ever return to its former glory?

ASDA

Unlike Tesco, Leeds-headquartered retailer Asda started 2015 by experiencing an overall rise in profits. Asda, which is owned by Wal-Mart, saw a 1.9% increase in operating profits to £1.013bn for the year ending Dec. 31 2014, as well as 2.3% rise in post-tax profits to £780m.

However, Asda did see a 0.4% in revenues to £23.2bn, and sales at stores open over a year also fell by 1%. During 2015, Asda’s sales have continue to drop at an alarming rate with the supermarket posting like-for-like sales declines of 3.9%in its first quarter and 4.7% drop in its second quarter, which was its worst quarterly sales dip in its 50-year history.

Asda seeing a decline in sales, but small rise in profit could be seen as a victory since none of the other ‘big four’ retailers could achieve this feat. There, however, isn’t an overwhelming sense of confidence in Asda by any means.

To combat by the loss of customers to discount stores, Asda made a £300m investment in lower prices during 2014, but this may have proven to be futile as there has been a substantial decline in sales for this year, culminating in its worst ever quarterly sales decline, which chief executive Andy Clarke called “the worst storm in retail history”.

Sainsbury’s

Out of the ‘big four,’ it appears that Sainsbury’s is the only chain that has a chance to keep up with the likes of Aldi and Lidl. A recent report for the 12 weeks ending 11 October 2015, revealed that Sainsbury’s experienced a revenue increase of 1.1%.

Since the supermarket chain’s rivals haven’t been able to achieve the same results, Sainsbury’s now believes profits for the full year to be ‘moderately’ ahead of the £548m previously predicted, although the total would still be considerably less than the £681m posted in the previous year.

But similar to its competitors, the notion of Sainsbury’s climbing back to the top of the retail food ladder doesn’t seem to be feasible at this current time.

Morrisons

I saved Morrisons for last because the Bradford-headquartered supermarket has found itself in a rather unique situation over the past week. But firstly, let’s review Morrison’s performance during the price wars.

In the first half of 2015, the supermarket chain’s total turnover was £8.1bn, which is down 5.1% compared to the same period last year. Store turnover also saw a decrease of 1.1% to of £6.4bn, which comprised a like-for-like decrease of 2.7% (including a contribution of 1.0% from online) and 1.6% from new stores.

Furthermore, a significant drop was seen in the supermarket chain’s underlying profit before tax, which was reported at £117m (2014/15: £181m). Reported pre-tax profit , after £9m net profit on property, was £126m (2014/15: £239m).

During this time, Morrisons only opened one new supermarket (26,000 sq ft) and five M locals (14,000 sq ft), and announced the closure of 11 storesas a cost-cutting strategy that will ultimately see 900 jobs cut.

Unlike the rest of the ‘big four’, however, Morrisons doesn’t just have to win back its lost customer-base, but the food retailer is currently embroiled in possibly the biggest ever claim for a breach of data security in Britain. Thousands of staff from Morrisons are set to sue the supermarket after their personal information was leaked online.

With this latest development, it will be hard to imagine if Morrisons can ever make a full recovery, not just financially, but to regain its shoppers and, more alarmingly, the trust of its own workforce.

Conclusion:

Although for most of the ‘big four’, a recovery period is definitely on the agenda, the price wars have proven to be problematic in more ways than one. With the giant food retailers slashing the cost of products, it could be argued that the likes of Aldi and Lidl are now seen as equals to the ‘big four’ and therefore helping budget supermarkets lose the reputation of selling downgraded products.

And as these budget supermarkets continue to see growth, attract new customers and open more sites, I can’t see the ‘big four’ reaching the top of the food retail ladder anytime soon.

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