Shore Capital analysts Clive Black and Darren Shirley reported on the volume growth being witnessed, which they said was largely countering the price reduction and leading to marginal revenue expansion.
With little new supermarket space being added, many supermarkets were seeing rising sales densities, they added.
Retail analyst Nielsen claimed it had been a “good period” for the UK’s leading supermarkets, overall.
“The four weeks ending October 8 was the third consecutive month of growth in both money taken at the till and volume of goods sold,” it said.
However, Shore Capital noted that the big four multiples – Tesco, Asda, Sainsbury and Morrisons – continued to lose market share to the smaller retail outlets.
Growing at a faster rate
But, that said, Tesco was growing at a faster rate than the whole market for the first time in many years which, according to Nielsen, was the first time since September 2013.
Shore Capital warned that Tesco’s improvement could hit Sainsbury in particular, which was losing market share in 2016.
Asda was also losing market share, as was Morrisons, although the latter was “a rejuvenating business”, said Black and Shirley, with good like-for-like sales momentum.
Black and Shirley also said Tesco’s mood was growing more confident, as shown by Tesco UK and Ireland chief executive Matt Davies’ positive presentation at the recent Big Debate in London organised by grocery think tank IGD.
The limited assortment discounters (LADs) continued to gain market share. But this wasn’t a surprise given that Aldi and Lidl were opening around 60–70 stores a year in the UK, said the analysts.
‘Best days for the LADs have passed’
“However, we continue to believe that the best days for the LADs have passed in the UK as the ‘free lunch’ that superstore groups offered has come to an end,” said Black and Shirley.
“The recent data suggests that Aldi has been much more robust than Lidl in trading momentum, albeit we reiterate the vulnerabilities of over-examination of short-term data.”
Looking to next year, Black and Shirley expected deflation to progressively ease and for inflation to re-emerge.
“We foresee the reality being that where there are negative imbalances in product supply versus demand, prices will rise, but where there is oversupply then margin will be further squeezed,” they said.
“Net, suppliers will absorb some inflation, retailers will absorb some inflation and shoppers will absorb some inflation, in our view.”