'Big Four' supermarkets' margins unlikely to recover before 2017, says Moody's

11th Jun 2015 07:11

The grocery retail market share of the 'Big Four' supermarkets - Tesco, Sainsbury, Morrisons and Asda - continues to fall and there is no immediate prospect of recovery in their profit margins, according to Moody's.In a note to clients on Thursday, the ratings agency forecast the Big Four's share of the UK grocery retail market to fall by 4% by 2020, with discounters Aldi and Lidl taking a larger slice as they continue to open new stores.Margins of the Big Four are unlikely to recover over the next 12 to 18 months due to further price cuts and the ongoing like-for-like sales declines, Moody's added.However, the agency said the UK's continued economic growth and strategies to offset structural changes in the domestic grocery market could support their gradual recovery from 2016-17 onwards.Sven Reinke, senior analyst at Moody's, felt the threat to the business of the Big Four from discount retailers was not going away anytime soon."We expect Aldi and Lidl's combined share of the UK market to reach 12%-15% by 2020," he said.Although the discounters' sales densities have caught up with the Big Four retailers, Aldi and Lidl could continue to gain around 1% market share every year supported by their store expansion plans at a time where the Big Four selectively close unprofitable stores in order to save costs."Reinke also felt there was a risk of an intensifying price war if the Big Four are not able to develop strategies to operate successfully with lower market shares, although this is not Moody's base case scenario."With the exception of Asda (owned by Wal-Mart), none of the other three players have the capacity to engage in many more rounds of price cuts as they have limited financial capacity to absorb further margin declines," he added."However, consolidation among the Big Four is also very unlikely given their already significant markets shares."