March of the discounters proves costly for big supermarkets

SUPERMARKET group Morrisons is under most threat from the advance of discount retailers, a new research study has shown.

The Local Data Company, which has completed a comparative study of areas where discounters are in abundance, said 49% of all Morrisons were located in areas with an above average number of discounters.

The study concludes that with the discounters set to grow further, then additional contraction by the leading supermarket groups appears inevitable.

For the purposes of the study, the discounters identified are: Aldi, Lidl, Iceland, Farmfoods, Poundland, Poundstretcher, Poundworld, Home Bargains, B&M Bargains and 99p Stores (currently the subject of a takeover bid by rival single price retailer Poundland).

The report, which covers the period 2010-2015, analyses growth by fascia and by town and identifies how and where the mainstream supermarkets have seen growth in competition and thus loss of market share as the discounters have opened up around them.

It concludes that the overall growth rate for supermarkets and discount stores across the various towns was 42.5% (1,949 units).

During the period, discounters opened 1,367 units at a growth rate of 48% – this is against 582 stores from the leading supermarket groups (a growth rate of 34%).

In 2014, discount stores growth was twice as fast as the big four supermarkets. With each discount store growing on average by 33 units compared to the big four, which grew by 16 units on average.

Tesco has the most stores (40) in the fastest growing towns during the last five years, with Sainsbury’s having the fewest (11).

Morrisons was found to have the largest percentage (49%) of its stores in towns with an above average number of discount and supermarket stores (the GB average is 7,051 people per discount and supermarket unit).

In contrast, Sainsbury’s and ASDA have the fewest stores in the densely populated towns (those towns above the GB average of 7,052 people per town).

Matthew Hopkinson, director at The Local Data Company, said: “This report clearly shows why supermarkets are losing ground to the discounters and of particular significance is that growth of both the supermarkets and discounters has continued unabated for the last five years. As such it was only a matter of time when sales and profitability of the big four supermarkets would be impacted.

“Add into the mix the growth of convenience stores by Tesco, Sainsburys and Morrisons then the issue is further compounded along with creating cannibilasation of existing supermarket stores by the same company’s convenience stores.

“With continued the growth of discounters, supermarkets and convenience stores (+2,253 since 2010) then more pain lies ahead which is further compounded by the rise in food and beverage operators (+15,000 since 2010) who are responding to an increasing trend for consumers to eat out rather than eat in which will further impact supermarket sales.”

Dr Clive Black, head of research for Shore Capital Markets said: “Supermarkets have been subject to enormous structural changes and challenges and this work brings out a central component of the adjusting scene; the growth of the discounters.

“Access to discounters is materially growing and with the Big Four supermarkets abandoning their store opening programmes with the exception of convenience stores, their relative rise is set to continue.”