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The tough environment that UK-based food retailers are having to handle at the moment did not just start at the beginning of 2014, but stretches back a couple of years. Food retailers have enjoyed arguably the most prolific decade in their history as the UK economy has boomed, and diversification away from just their core food sales opened up greater revenues.
With hindsight we can see that 'too far too soon' may be an accusation thrown at the UK-based food retailers, as overseas expansion blinded them from the stalling performance at home.
The obvious example for this is Tesco’s ambition to conquer the US. In the end Tesco spent billions of pounds trying to instigate a new shopping trend with its Fresh & Easy chain in America, only to eventually throw in the towel. Almost two years ago the company changed its game plan and embarked on a reorganisation and upgrade of many of its UK stores.
Coinciding with this downturn in profitability and reduction in the spending power of the UK shopper, both Sainsbury’s and Tesco have seen its long-term CEOs step down. In 2011 Sir Terry Leahy stepped down from Tesco and more recently, in July, Justin King stepped down at Sainsbury’s. Due to the success that both of these CEOs enjoyed, expectations for the replacements have been exceptionally high, especially in the case of Philip Clarke at Tesco — his reign lasted just over three years before Dave Lewis was parachuted in.
As for WM Morrison, having finally partnered up with a company able to offer a ready-made online platform and the distribution infrastructure required for ‘click and deliver’ shopping, it has failed to capitalise on the opportunity. When analysts refer to the big four UK food retailers there is an increasing feeling that the list might soon be whittled down to three.
The recent history of these three companies makes for worrying reading. Tesco has mis-managed its own internal accounting to the tune of £250 million and is now being investigated by the FCA. Sainsbury’s has downgraded its full-year targets and now has a new man at the helm. WM Morrisons repeatedly appears to be squandering the opportunity to finally play catch up with its bigger competitors by failing to create a competitive online platform and delivery service.
At the close on Wednesday's trading, WM Morrisons was down 38.4% year-to-date, Sainsbury’s down 36.3% and Tesco down 45.4%. As attractive as these levels might appear when viewed over the last decade, it is difficult to believe that there are no other issues yet to materialise.