Supermarket ills revealed in UBS shopper survey

CHRIS KOHLER 
April 4, 2017
The Australian

Aldi may have done its dash, for now, IGA is in even deeper trouble than first thought, and Woolworths is still trailing a long way behind Coles despite its much-hyped “turnaround tale”. 

These are the three main surprises that struck UBS analysts during their latest nationwide grocery shopper survey. 

In February UBS surveyed almost 1100 grocery shoppers to sniff out ground-level trends and extrapolate relative strengths and weaknesses for Australia’s supermarkets.

Some of what the analysts uncovered, they say, has major implications for the country’s biggest food retailers.

While Woolworths’ turnaround is well underway in terms of traffic, spend and overall customer perception, there is still a mountain to climb for the heavyweight, the analysts found.

Meanwhile Coles, Aldi and IGA are showing varying levels of disappointment in a strengthening sector. 

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“We were surprised by the extent to which Woolworths still trails Coles in main shopper penetration, which we estimate represents (an around) 150bp market share opportunity over time,” UBS analysts led by Ben Gilbert said. 

Woolworths has boasted loudly about the $1 billion is has invested in lowering prices in the last 12 months, and while the analysts are “surprised” by how far behind Woolies remains, they still recommend the stock as a “buy” despite it gaining 19 per cent since the December low. 

The runaway freight train that is Aldi, in terms of market share and store-number expansion, could be hitting the skids, with the analysts also finding some holes in the newcomer’s armour. 

“The magnitude of the slowdown in Aldi, evidenced by the broadbased fall in customer perception and drop in planned future visitation (also surprised),” Mr Gilbert said. 

The problem for Aldi seems to be a natural peak in the amount of shoppers it can lure away from the major retailers. Now it must become the only place the customers need to visit. 

“While shopper visitation growth across Aldi customers slowed relative to June 2016, existing Aldi main customers cited increased visitation.” Mr Gilbert said. 

“The above said; the rate at which new main shoppers increased halved in 2017, which suggests Aldi is finding it increasingly hard to gain new main shoppers from competitors.

“We believe winning a greater share of main shops will be key to Aldi seeing share gains re-accelerate, combined with the rollout of its new formats (greater fresh focus) down the east coast.”

Meanwhile IGA is in even worse shape than previous already-grim expectations.

“The rate of decline in IGA is accelerating faster than we thought, suggesting downside risk,” UBS said as it reiterated its sell on Metcash with a view the market share and margins will fall as Aldi steps up its presence in South Australia and Western Australia.

Overall, UBS rates Woolworths a “buy”, Wesfarmers a “neutral” and Metcash a “sell”, saying Woolies has “the most medium-term upside risk among the listed grocers”.

UBS also notes February retail sales data showed a healthy scorecard for supermarkets, with a 3.8 per cent year-on-year gain for supermarkets “boding well” for Woolworths and Wesfarmers. 

“Core supermarket sales remain above the 12-month run-rate, suggesting trading has picked up to in-line/ahead of our expectation for food and liquor growth of 3.2 per cent in 2017,” Ben Gilbert wrote in a separate report.