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[June 09, 2014]
Sainsbury and its rivals should invest less in online shopping, says HSBC
(Guardian Web Via Acquire Media NewsEdge) Should J Sainsbury and the other listed supermarkets stop investing so much their online services and concentrate instead on cutting prices in-store to head off the competitive threat of discounters Aldi and Lidl? In the view of analyst David McCarhy at HSBC, the answer is yes. He believes customers want cheap products more than they want home delivery.
He issued an underweight rating on Sainsbury with a 280p price target and said: Market data shows that Sainsbury is losing share, despite around £1bn capital expenditure last year. This supports our view that the [three quoted supermarkets] need profit and loss investment rather than capital investment to fight back against the discounters, which are a growing threat, not a diminishing one.
The internet is taking around 1% more market share per annum, but Aldi and Lidl combined are winning share at twice this rate and do not have online operations. Aldi alone is growing its market share faster than the entire internet is winning it in grocery.
We believe that the quoted three would be better off investing in the core offer rather than focusing on growing much less profitable/loss-making online operations. Large store operators have overly focused on each other for several years and continue to do so, in our view, rather than focusing on the wider market and consumer.
That the discounters are growing faster than total online suggests that consumers want lower prices more than they want home delivery. Sainsbury and others should stop subsidising internet growth and focus on offering in-store consumers better value for money, in our view.
Ahead of a trading update on Wednesday, J Sainsbury is up 2.7p at 328.8p while Tesco has added 3.85p to 294.4p and Morrisons - late to the online party anyway - is up 1.8p at 194.8p.
(c) 2014 Guardian Newspapers Limited.
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