The fallout in stock prices continues for the UK supermarkets. Tesco (NASDAQ:TESO), the favored pick by this columnist, is selling for 1.5x book value. Morrison’s, one of the smaller supermarkets, sells just above book value and, like Tesco, it has a portfolio or real estate valued below market on its balance sheet. However, we don’t need to see what these companies would be worth in liquidation; the cash flows are still there and these large incumbent grocers still control more than 90% of the market.
The rise of Aldi should still make these companies tremble. As a Tesco shareholder I’m much more concerned about Aldi with 4% of the market than Asda with 4 times that at 17%. But what I think doesn’t matter; the customer ultimately decides which company will perform. In the course of reading some UK articles about the supermarkets I stumbled upon a gold mine of customer opinion on Tesco and Aldi.
The articles were about the rise of Aldi and Tesco's market share decline. Perhaps that naturally draws Tesco opponents and Aldi fans who relish the idea of a crumbling Tesco. The commentary certainly is favorable to Aldi, but there are still some interesting points in favor of Tesco, particularly its online business. I reposted some of the more insightful opinions and comments especially relevant for those Americans who have never stepped foot into a British supermarket (British readers, we’d love to hear your comments). The links to the original articles:
“Lidl and Aldi:
1. Don't give you as much choice. For example in Tesco you can get about 20 different types of humus in Lidl you get 4-5. In Tesco you get about 50 different types of bread, in Lidl you get 4. In Tesco you get 10 different types of eggs, in Lidl you get 2.
2. They haggle harder with their suppliers.
3. They have weekly special offers which attract people.”
“The cost of supermarket delivery varies throughout the day and can be as low as £3.00. If you have 4 students in a shared house £3.00 is not a lot to pay between them. The cost of public transport or a car to get to the supermarket will be much more that c75p each.
Online shopping can make economic sense - and you may spend less if you see it totting up on screen - so online shopping may put more money in your pocket.”
“I remember this story back in 1989. Then it was Kwiksave that was going to put the supermarkets out of business (and Japanese cars were going to take over the entire car market). We are looking at a retail market which has suffered 7 consecutive years of recession *and Aldi/Lidl/ have made some ground. Only 18 months ago the new star was Morrisons and looked what happened there.
The recessionary effect has been compounded by some big mistakes - particularly at Tesco where there is no doubt that complacency set in. But I think the major impact is recession and the tiredness of shoppers with tricks, gimmicks and reduced quality. Put those things right and there is plenty of room for a supermarket with plenty of choice at good prices and Aldi/Lidl suddenly look like poor options.”
“I really dont get this Lidl and Aldi are cheaper. Comparison shop for my staples and both are more expensive; maybe it’s because I buy own cheap label. Milk egg cheese ham butter pasta are all cheaper at Asda.”
“Then why not order your food online from one of these supermarket juggernauts? Shopping for basic food and toiletries is not meant to be fun is it? You don't impulse buy when ordering online and you can compared offers and get the cheapest.
My missus takes 2 hours a month to do our Tesco online shop. We pop up the road for bread, milk and fruit every couple of days, but that's it. (the delivery staff always comment on how much stuff we order). On average it's £350 a month for the two of us which includes all toiletries and household items, plus another £50 for bread etc throughout the month.
Would it be cheaper going to Aldi?”
“Nothing wrong with UK supermarkets. I'll keep going.”
“I use all of the supermarkets mentioned except Tesco and the Co-Op. Mainly because the nearest Tesco is 10 miles away and the nearest co-Op is a small one with high prices that reflect that. I find little difference in price between Asda, Lidl and Aldi. Some things are a few pence more in one store but others may be a bit cheaper. We shopped at Aldi yesterday for own brand stuff. Tomorrow I'll be in Asda for salad stuff.
Morrisons and Sainsbury are generally more expensive. I now avoid Sainsbury because they put car parking charges on.
Morrisons gets few visits just for a couple of own brand items I cannot get elsewhere. It's a shop I avoid on principle being the first large supermarket in this area 40 years ago. It destroyed many local businesses then banned children unaccompanied in their store. No longer could a mother send her son/daughter out to the corner shop for a loaf of bread. Morrisons destroyed local culture.
If they all went under it would not bother me one bit. I regard them as the same as bankers. If they all left someone else would fill the gap”
“For years the German discounters Aldi and Lidl were dismissed as a quirky sideshow, the same here in Germany back in the 80s. Most Germans falsely dismissed Aldi as a discounter for the poor - almost embarrassing to go there. Only a few years later Aldi ruled the country and today even the rich go there for high quality food.”
“As I understand it, the reason Aldi and Lidl have these small stores is because Germany don't give planning permission to massive supermarket stores. Something to do with all the other shops objecting to being frozen out if they were built. They built their model around this and have just carried on.
Anyway, as others have also recognized, the narrower choice in each range makes for easier decision making! And therefore way less stressful. Given the lower price you'll be paying, you probably won't object to buying a standard tin of tuna rather than the small one you intended.”
“I used to be quite a fan of Lidl and Aldi, but I think that their quality (particularly fruit and veg) has fallen off a cliff, and I got fed up of taking in date, rotten stuff back to the shop.
I would say that with regard to quality (albeit at a price), I would grade the supermarkets as follows
3) M & S
4) Tesco, Asda, Morrisons
5) Aldi and Lidl
The farm shop 20 miles away is great for a once weekly trip. The prices are lower than any of the above, and the quality is superb, so there is no wastage.”
“Tesco bosses are out of touch with their customers. Take us for example, we use Tesco online for the basics such as washing powder, but use Waitrose for meat and fresh food such as fruit because it's far better quality. Little things such as Tesco red meat invariably having a slight green sheen (early putrefaction) that somehow no one notices year in year out.
Another example Tesco Maris Piper spuds do not crisp up like the Waitrose Maris Pipers do - maybe something to do with storage.
All these little irritants add up but the board is blissfully unaware. GET OUT AND TALK DIRECTLY TO YOUR CUSTOMERS - ESPECIALLY THOSE THAT USE YOU LESS NOW. Do not rely on market research gurus to tell what people are thinking because the surveys they employ are never forensic.”