Aldi and Lidl overtake WM Morrison Supermarkets plc

Morrisons supermarket store

Latest market share figures from Kantar Worldpanel show that WM Morrison Supermarkets(LSE: MRW) has, in one way, lost its place as number four in Britain's grocery market share war.

Morrison has long been Britain's fourth-largest supermarket chain in terms of its share of the UK grocery market, and it still is with 10.6%. But  now, for the first time, when you combine their market shares, Aldi's and Lidl's 10.7% is bigger. 

A secular trend? 

The lean, German-owned upstarts continue to post double-digit gains in sales in a relentless advance that threatens the existence of big, lumbering operators such as Morrisons. During the 12 months ending 14 August, Aldi's sales advanced 10.4% and Lidl's by 12.2%. In contrast, Morrisons'  sales dropped by 1.8%.

The rise and rise of Lidl and Aldi has strong momentum and month after month their sales growth figures never seem to miss a beat. They do things differently and the London-listed supermarket chains are trying to emulate them. For example, in the supermarket sector, promotional sales have dropped to their lowest level since September 2010 as the big supermarkets aimed for simpler pricing models. 

That move will put more transparency into the big supermarkets' selling practices, which could start to win back trust from customers that have felt manipulated in the hands of these businesses for so long, I believe. But is it too little too late? Aldi and Lidl's rapid assault on Britain's grocery market is no accident. The low-price pair arrived on the scene at the right time, just as a secular trend in the nation's shopping habits emerged and gathered pace.

No going back

I don't think we can explain consumers' new-found value-hunting credentials by looking at the macroeconomic environment alone -- although this age of austerity and suppressed earnings for the majority is a big part of it. No, Britain's grocery shoppers are fed up with the apparent over-pricing-by-stealth that led to previous bumper profits for the big four supermarket chains in Britain. When Aldi and Lidl came along offering more quality and quantity for less money, it was a no-brainer for many.

Now it's too late. There's no going back to cosy business models for Morrisons and the other big supermarket chains. The old way of doing things is dead, so they must adapt or die. Aldi and Lidl are disrupting the sector and Britain's grocery shoppers are staging a revolution by voting with their feet. 

Morrisons will change, of course, and it seems that the firm will keep struggling along for many years to come. However, a return to past glories in some sustained turnaround seems unlikely, as does any long-term growth. At today's share price around 198p, Morrison trades with a forward price-to-earnings ratio of 18.5 for year to January 2018. That's pricey, and if I owned the supermarket's shares now I would be selling to buy shares in firms with less challenging markets.

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Kevin Godbold has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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