Supermarket troubles

[GrahamPlatt]

This video, while long, is well worth watching. Covers a wide range of topics from the large-format stores struggling to make a profit, the activities of the big players creating obscure groupings, automation/roboticisation, vertical integration (unable to squeeze producers sufficiently, developing their own more efficient hydroponics farms), to the coming of the behemoth which is Amazon, which will eat them for lunch. Scary.

https://invidious.flokinet.to/watch?v=ymxG4wOP7fk

[vand]

It has always been a competitive and low margin business, and people who operate in it shouldn't be under any illusions otherwise - price to sales through the sector tell your everything you need about how difficult it is to make excess profits in the sector.

Arguably, that is the way it should be. Food and household essentials should be low margin business where suppliers compete on price and value. If it was the other way around and the supermarkets were the pricesetters then I'd be more worried.

It's an interest documentary though - competition is everywhere, and in a thriving and dynamic economy that is the way it should be.

[scrumpyjack]

But for supermarkets that keep it simple, efficient and maintain product quality, it can be very profitable. The cash flow is wonderful - they get paid by their customers before they have to pay their suppliers!

[Dod101]

But for supermarkets that keep it simple, efficient and maintain product quality, it can be very profitable. The cash flow is wonderful - they get paid by their customers before they have to pay their suppliers!

Yes I have always thought that about Lidl and Aldi especially as they will have very little stock that sits around for very long with their very limited ranges. Probably not so good for Tesco with its much bigger range. That at least will help to compensate for the modest margins.

Dod

[GrahamPlatt]

Yes, it was a long video and it does start slow. I can understand why some haven’t watched it.

[CliffEdge]

What is the point of Lidl nowadays?

[GrahamPlatt]

What is the point of Lidl nowadays?

power tools

[Tedx]

I recall back in the day that Tesco were feared by all on the high street as they moved into clothing, shoes, insurance, banking, home electronics, gardening products and so on. In fact they were blamed for the destruction so many small and medium sized retailers.

Now the supermarkets are in danger of being being usurped completely by the online giants.
.
.
.
If Amazon is the equivalent ofJesus Christ, then Tesco was probably John the Baptist.

[vand]

I don't see Amazon entering the space as a bad thing at all (and I hold SBRY shares). They will have to compete alongside everyone else, and there are no guarantees they will have a competitive advantage over established players. I think Amazon is an amazing company - probably the most innovative and disruptive company there has ever been - but history shows that sooner or later all companies that grow and move into something they have no heritage in eventually find the limit of what they are good at.

[Nimrod103]

Anecdotally my local Sainsbury's and Tesco's continue to be busy, and they are attempting to compete with Aldi/Lidl head on. Both are pushing the customer loyalty card discounts, and they both benefit from a lot of own brand goods which undercut the big brands. However, it is obviously a very competitive market, and I assume the above supermarkets are all winning market share at the expense of Waitrose, Morrisons and maybe also ASDA.

(I have small holdings in Sainsbury and Tesco, bought at the prompting of my wife, and against my better judgment).

[Dod101]

Anecdotally my local Sainsbury's and Tesco's continue to be busy, and they are attempting to compete with Aldi/Lidl head on. Both are pushing the customer loyalty card discounts, and they both benefit from a lot of own brand goods which undercut the big brands. However, it is obviously a very competitive market, and I assume the above supermarkets are all winning market share at the expense of Waitrose, Morrisons and maybe also ASDA.

(I have small holdings in Sainsbury and Tesco, bought at the prompting of my wife, and against my better judgment).

Why should they be winning against Waitrose, Morrisons and maybe Asda? What makes you say that?

The real question is: Are they doing well enough to compete against other shares available in the market? Not against other supermarkets. Long ago, I concluded that as a sector they offered and were likely to offer a fairly poor return and so it has proved.

Keep well away.

Dod

[Hallucigenia]

to the coming of the behemoth which is Amazon, which will eat them for lunch. Scary.

https://invidious.flokinet.to/watch?v=ymxG4wOP7fk

I'd say that's more aimed at the US supermarkets rather than here. Grocery shopping there is some way behind here in general, and it's a *lot* more expensive, even allowing for the fact that "Clubcard prices" are the norm there. So there's a lot less room for Amazon to undercut - and they're certainly not going to do that with Whole Foods which is at the Waitrose level of the retail food chain.

I'd also observe that Walmart, king of US retailing, struggled to do much with ASDA - they bought it for £6.7bn and sold it for £6.8bn twenty years later, so a big loss in real terms.

So I wouldn't underestimate the Europeans.

[Hallucigenia]

I'd say that's more aimed at the US supermarkets rather than here. Grocery shopping there is some way behind here in general, and it's a *lot* more expensive, even allowing for the fact that "Clubcard prices" are the norm there. So there's a lot less room for Amazon to undercut - and they're certainly not going to do that with Whole Foods which is at the Waitrose level of the retail food chain.

Just as an example, in the Amazon Fresh (presumably intended as their "cheap" brand compared to Whole Foods) at 17:22 they have "Fresh Grape Tomatoes" at $2.49 (£1.99) for 10oz. That's £7/kg - I imagine Whole Foods would be more like £10-15/kg.

Whereas even in Brexit Britain, Tesco are selling their basic cherry tomatoes at £2.60/kg, ordinary ones at £3 and their Finest at £7.20.

It seems to be a bit of a thing to vlog trips round supermarkets, and the comments on something like this one ( apologies for her being a bit annoying) are full of North Americans marvelling at the prices and at the store itself (admittedly it's Tesco's flagship one in London with all the toys)
https://www.youtube.com/watch?v=spAeuJzipVo

[Nimrod103]

Anecdotally my local Sainsbury's and Tesco's continue to be busy, and they are attempting to compete with Aldi/Lidl head on. Both are pushing the customer loyalty card discounts, and they both benefit from a lot of own brand goods which undercut the big brands. However, it is obviously a very competitive market, and I assume the above supermarkets are all winning market share at the expense of Waitrose, Morrisons and maybe also ASDA.

(I have small holdings in Sainsbury and Tesco, bought at the prompting of my wife, and against my better judgment).

Why should they be winning against Waitrose, Morrisons and maybe Asda? What makes you say that?

The real question is: Are they doing well enough to compete against other shares available in the market? Not against other supermarkets. Long ago, I concluded that as a sector they offered and were likely to offer a fairly poor return and so it has proved.

Keep well away.

Dod

I offer no great insight into the supermarket industry, merely my observations because at various times I go to all the stores, which are all represented in my local towns, and observe what they are doing, what they are selling and who is buying. I don't think that Waitrose, Morrisons and ASDA have the financial strength to outcompete Tescos and to a lesser extent Sainsburys, because of corporate issues. Their stores are looking dowdy and their offerings poor. I would have expected at least one of them to fold soon, though probably the Govt (via the Competition Commission) will intervene to prevent it.

Despite its low prices, my local ALDI is a mess, Lidl is much better. But I think Sainsburys and Tescos are being successful in fighting off the German discounters with their low prices (on some goods). But I don't deny competition is presently fierce and Tescos profits have taken a beating (https://www.retailgazette.co.uk/blog/20 ... inflation/). But once the inflation spike has passed, they may be able to up their profit margins.

[dealtn]

Their stores are looking dowdy and their offerings poor.

The UK supermarket sector is super competitive. Margins so low. Often that leads to cutbacks in investment that can't be justified against the financial model. sell cheap pile it high (don't care what it looks like) can be one of the more successful startegies.

Shop prices (and store profitability) here should be seen through the lens of what is available to consumers elsewhere in the world. I fear, similarly to UK banks, they attract a lot of criticism, but in practice are mostly delivering wide ranges of goods at competitive prices - what the consumer in the market should want.

As with banks it is consumers benefiting relative to investors in this market.

[AF62]

What is the point of Lidl nowadays?

The point - Prices at low as Aldi but shorter queues (at least in my local stores where a Lidl and Aldi are opposite sides of the street) and an in-store bakery.

[tjh290633]

What surprises me is the holding of Tesco's dividend by a reduction in the final, while still wasting money on share buybacks. If they can afford them they must have money to burn.

TJH

[dealtn]

What surprises me is the holding of Tesco's dividend by a reduction in the final, while still wasting money on share buybacks. If they can afford them they must have money to burn.

TJH

They have the same amount of money regardless of whether it is spent on dividends or share buybacks. Emotive language regarding their choice, and non-literal burning of financial assets don't belong on a sensible board regardless.

[Dod101]

What surprises me is the holding of Tesco's dividend by a reduction in the final, while still wasting money on share buybacks. If they can afford them they must have money to burn.

TJH

They have the same amount of money regardless of whether it is spent on dividends or share buybacks. Emotive language regarding their choice, and non-literal burning of financial assets don't belong on a sensible board regardless.

It is nevertheless an interesting choice and they could have upped the dividend which is I guess what TJH is implying. I do not hold Tesco so I have no particular interest but to me it might suggest that they do not see any or much increase in profits over the next year or two (and they are thus avoiding maybe having to cut the dividend next year) Share buybacks on the other hand, by definition reduce the number of shares in issue and thus might make it a bit easier to at least maintain the dividend.

Dod

[Hallucigenia]

It is nevertheless an interesting choice and they could have upped the dividend which is I guess what TJH is implying.

It's all the fault of people who invest for dividends, who put more store by a record of continuously-increasing dividends, than they do with cash in their pocket. That implies companies should only ever pay dividends that they think are sustainable in the worst years. So what do they do in the 90% of years that aren't the worst? They use their cash for buybacks as it's more flexible.

The classic example is the big oil companies, who have to ride the cycles of the oil price, but vary their divis far less. One way they achieve that is that if they have a bumper year because of eg Iran blocking the Gulf, they end up buying back £10bn's of shares, but then buy back almost none in a bad year for the oil price.