Sector movers: Supermarkets fall as competition from budget retailers ramps up

25th Sep 2013 14:10

Supermarket stocks were among the worst performers on Wednesday afternoon as gloomy comments from JPMorgan Cazenove weighed on sentiment.Tesco was the heaviest faller after the US bank downgraded its rating for the stock from 'neutral' to 'underweight', saying that the company will be the most affected by structural problems in the UK food retailing industry."The discounters (Aldi, Lidl) are disrupting the price/range architecture that the 'Big Four' used for two decades, the customer is demanding a simplified product range, and there is a need for reduced mid-tier pricing," said analysts Jaime Vazquez and Borja Olcese."With Tesco's initiatives having had limited success, weak like-for-likes, and margins persistently above peers', we think Tesco is more likely to go through a painful rebasing of pricing and the gross margin (synonymous to a profit warning)," they said.JPMorgan's proposed solution to Tesco's problems is to simplify product ranges to offer the best possible price/quality combination, whilst avoiding range extensions aimed at maximising basket cost and gross margins. The analysts explained that the discounters had improved the quality of their offerings, therefore value ranges from bigger supermarkets like Tesco will struggle to compete."Tesco is struggling to maintain its dominant 30% market share as consumers defect to discounters, upscale chains such as Waitrose and the Internet," said Financial Sales Trader Max Cohen from Spreadex.Cohen also pointed out that the downgrade from JPMorgan Cazenove came just "a week after [the bank was] dropped as the supermarket company's co-brokerage advisor".The stock was down 3.48% at 361p by 15:04 on Wednesday. The share prices of rivals Sainsbury and Morrisons were also lower after JPMorgan maintained its 'underweight' rating for both stocks.Figures released by Kantar Worldpanel yesterday showed that Tesco's market share shrunk to 30.2% in the 12 weeks to September 15th from 30.9% a year before.Kantar noted that Sainsbury was the only one of the Big Four grocers to increase its market share over the past year, growing from 16.4% to 16.6% and recording market-beating growth of 5.1%. Asda meanwhile was outperforming Tesco and Morrisons with year-on-year sales growth of 2.4%.Top performing sectors so far todayMobile Telecommunications 5,069.19 +2.08%Industrial Metals & Mining 1,560.68 +0.71%Real Estate Investment & Services 2,536.02 +0.55%Automobiles & Parts 8,169.20 +0.52%Mining 16,882.64 +0.48%Bottom performing sectors so far todayElectricity 9,609.05 -4.87%Gas, Water & Multiutilities 5,704.77 -2.06%Food & Drug Retailers 4,683.29 -1.89%Beverages 14,749.40 -0.85%Software & Computer Services 1,131.93 -0.79%BC