Tesco is 'most at risk' from further discounter growth - Credit Suisse
Tesco out of the big UK supermarkets remains most at risk from the continuing rise of discounters Aldi and Lidl, Credit Suisse warned as it also cut its share price targets for Sainsbury's but lifted its target for Morrisons.
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Location remains the principal driver of grocery store choice for consumers, said the Swiss bank in a note to clients on Monday.
Using a proprietary database of over 8,000 store locations throughout the UK and calculating over the distance between 62m neighbouring pairs of shops to determine the relative impact of continued discounter growth on Tesco, Morrisons and Sainsbury's, analysts said there was "plenty of opportunities left" for the German-owned pair.
Even in areas that seemed to be saturated with Aldi and Lidl stores, there remained "significant pockets" of space for further store growth.
"Tesco appears most at risk", analysts said, with only 65% of its 743 supermarkets in the UK within 2km of an Aldi or a Lidl which is the lowest percentage among the Big Four grocers.
As a result, Credit Suisse has reduced its earnings forecasts for the next two years for Tesco by roughly 3.5% and trimmed its target price to 140p from 145p, also reiterating its 'underperform' rating.
While Sainsbury's has a 'southern stronghold' this is "not relevant", the analysts felt, noting pointing out that only 21% of Aldi or Lidl outlets are in the southeast versus 42% for Sainsbury and 26% for Tesco, but this has not slowed their losses of market share in recent years.
Sainsbury's forecast margins have been cut by around 30 basis points for the current year and through the next two, with the target price cut to 295p from 320p but the sector-relative 'outperform' rating maintained.
Morrisons has been worst hit by the growth of the discounters, with 74% of its 491 supermarkets already within 2km of an Aldi or a Lidl, and 23% having both.
As a result, its future impact is predicted to be more limited, leading to the target price being lifted to 250p from 240p and its 'neutral' rating reiterated.