UK supermarket competition hots up

By Anita Awbi

- Last updated on GMT

Related tags Tesco Asda Morrisons

With Sainsburys muscling in on Asda's precarious number two spot -
and other competitors strengthening their positions - Britain's
food retail market is set for a cut-throat year.

Asda has just held onto second place in the food retail index with a 0.3 per cent lead over rival Sainsburys, according to TNS figures for the 12 weeks to March 26.

The Leeds-based grocer now claims 16.3 per cent of the supermarket share, with Tesco unsurprisingly still way out in front with 30.3 per cent.

But Sainsburys' successful recovery programme, first initiated by chief executive Justin King in 2004, is finally generating results as the firm looks set become the second largest by the summer.

TNS director Peter East told​: "I suspect the reality is that over the course of the year it is likely that Sainsburys will take that second place spot. The interesting point will be how difficult or easy it is to hold onto this spot. It will be a close fight."

East cited the historically changeable summer period as a time when Asda should most be on guard, with early summer and late autumn being particularly turbulent times.

"Clearly at the moment Sainsburys is performing reasonably strongly compared to Asda and I don't see that changing, but the gap should be closest in the summer when the second spot will be difficult to maintain,"​ he said.

But Asda's 1.9 per cent growth rate - below the grocery sector average of 2.8 per cent - will make it difficult for the company to make long-term gains. In this respect Sainsburys looks best placed to drive its market share forward, with TNS recording a 4.2 per cent growth rate.

But competitive pressure throughout the sector is rising up a notch, with Marks and Spencers and Waitrose showing strong performance and formidable expansion plans.

And Morrisons has pledged to deliver a stronger performance, after last year's chaotic takeover of Safeway. Last month the company announced plans to boost margins, reduce staff and save £60m on costs.

East said these factors will generate further competition, and could perhaps impact on Asda and Tesco's overall leads.

"Tesco's performance is still remarkable, but is softening off. This is partly due to the competition around it,"​ he said.

"General merchandise is not such a big thing anymore, compared to a couple of years ago. This means Tesco can't keep growing non-food that much and stealing trade away from the High Street."

And the supermarket's recent expansion to boost trading space and focus on its convenience store portfolio may eat into sales. This could shrink the company's market share over the coming months.

But with a strong growth rate of 7.2 per cent, the leader's position looks set in stone for the near future.

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