1428 Monday 7 January 2019

As we touched on last Friday, the next couple of weeks will be crunch time for the UK High St. as supermarkets and retailers announce their Christmas sales statements. For Morrisons, they will be aiming to hold on to fourth place, but they will be facing stiff competition.

This morning, German supermarket chain Aldi announced that its UK arm had increased sales by 10% during December almost hitting the £1bn mark. Aldi currently sit in fifth place on the supermarket charts, but these new sales figures may change their placing. The German chain has doubled their market share since 2010 by utilising aggressive expansion and Brexit fears have also played into their hands as families become more budget conscious.

There is no doubt that the brass at Morrisons will have gone through Aldi’s figures with a fine tooth comb and came out guns blazing this morning by announcing the price cut of almost 1000 products by an average of 20% and prices will stay slashed for a minimum of three months. But the interesting thing behind the price cut announcement is the timing as Morrisons too are to give a trading update tomorrow. Conventional thinking might suggest that a company would either make this announcement hand in hand with their trading statement or alternatively after taking in the market effect of the statement.

So what can we read from this?

A)     Knowing Aldi were giving their trading statement today, Morrisons’ early announcement might be intended to take some of the gloss off the results?

B)      Perhaps tomorrows figures are less than average, or worse. An announcement like todays may allow them to gain a percent or two ahead of any potential drop the a poor trading statement could bring?

C)      Tomorrow’s statement is good and Morrisons want to get a double boost by separating the two?

These are three possibilities floating in the thoughts of investors, but there may well be a fourth, fifth or sixth out there too.

Other than Aldi being hot on their tails, Morrisons also faces danger from all other angles, but they could be turned into their benefit. Rivals Tesco are launched and are now expanding their low-cost brand Jacks that is designed to target the Aldi clientele and the Sainsburys/Asda merger is pending approval from the Competition and Markets Authority, both of which are a threat to Morrisons. However, one of the issues that the CMA had with the merger is that it would freeze other chains out certain areas, therefore some Sainsburys and Asda stores will need to be sold off. Were that to be the case, the size of these stores may be too big for Aldi to take on with their current business plan and Tesco may have their hands full with their new Jacks project to step in. Therefore, it wouldn’t be too farfetched to imagine this could give Morrisons a chance to step in with some great expansion.

With all these theories in mind, tomorrows trading statement from Morrisons will garner much attention from investors.

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