Discounters set to eat Tesco´s lunch, JP Morgan says

2nd Sep 2015 11:01

(ShareCast News) - The UK´s 'Big 4' food retailers pose "a rather structural threat" for the industry, according to JP Morgan.In Ireland, Aldi and Lidl already have 18% of the market in the bag - alongside 8% of the UK market in the till - and are continuing to grow their market shares the fastest.Tesco on the other hand is out of love and continues to sport the largest declines.Compounding matters, the Big 4´s margins are being trod underfoot by the worst possible combination, top-line deflation together with cost inflation (rents, wages and pensions), the bank´s analysts pointed out in a research note e-mailed to clients.On the other side of the aisle, Aldi and Lidl are offering some tough competition. At Aldi, personnel, depreciation and rent expense amount to an approximately combined 9% of sales - versus more than 15% at the company founded by Jack Cohen in 1919.That means that Asda, Morrison, J.Sainsbury and Tesco will find it harder to narrow the 'price gap' versus their competitors.Indeed, Sainsbury´s recent decision to raise salaries by 4% for 60% of its workforce will be followed by the other big grocers, proof of how 'thin' the wage architecture of instore employees is in the rest of the industry. Following on from the above, the broker lifted its target price on Tesco´s shares to 175p (from 160p), on Sainsbury´s to 225p (from 200p) and on Morrison´s to 225p (from 200p).