Telegraph1 Jan 2016 20:30
If 2015 was the year that supermarket retailers’ problems really came home to roost, then 2016 will be the year that drastic action to rectify them will be taken.
By the end of the year, one of the country’s three quoted supermarket groups will, I predict, be no longer listed on the stock market as a solo entity – either as a result of a takeover by a rival, or, more likely, a private equity or similar financial backer.
The status quo simply cannot continue. In the past 12 months, shares in Tesco and Wm Morrison have fallen by 20.5pc and 19.1pc repectively, while those in J Sainsbury have risen 6.3pc.
Although investors are aware of the many challenges the Big Four – Asda, which is owned by US-listed Walmart, being the fourth – face, they are unlikely to continue to fiddle while Rome burns.
Each of the quoted retailers has a relatively new management team, and so cannot blame predecessors for any under-performance.
Which one will bite the dust this year?
Which one will bite the dust this year? Photo: PA
The Christmas trading updates – which begin in earnest this coming week – will give the first indication of what might happen next. Morrisons’ is likely to be weak, Sainsbury’s better than average and Tesco’s so-so.
The weak path that Morrisons is on will only worsen. Dave Potts and Andy Higginson, chief executive and chairman respectively, are strong leaders, but under the lens of a quoted company cannot take the sort of drastic action they might like to.
They – and the retailer – would be better served by being able to operate in a private environment where decisions over estate and digital investment can be taken without having to worry about quarterly sales updates.
Although the suggestion that Sainsbury’s – whose star is relatively in the ascendance right now – could buy Morrisons continues to emerge from time to time, competition issues would likely preclude any real value from being created.
In addition, while a takeover by a rival might solve some of Morrisons problems, it wouldn’t solve the fundamental issue of market over-supply and the continued race to the bottom on prices.
It might be the case that a private equity investor sees more value in backing a retailer on the up – such as Sainsbury’s – rather than one which is troubled.
But it would seem unlikely – given its £12bn-plus market capitalisation – albeit not impossible that Tesco might fall victim to such a tilt.
These are, of course, simply predictions – and probably doomed to abject failure.
Whatever does happen in the grocery sector this year, you can be sure that it will be far from dull.
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