A day before it kicks off the sector’s Christmas trading update season, food retailer William Morrison Supermarkets PLC (LON:MRW) got a kick in the teeth today from BofA Merrill Lynch.
In a review of the European food retail sector, the US bank’s analysts downgraded their rating for Morrisons to ‘underperform’ from ‘neutral’ sending its shares lower.
In late morning trading, Morrisons’ shares on the FTSE 100 index were down 1.6p at 234.7p.
In their note to clients, the BofA analysts said: “The return of ‘stark’ inflation and the difficulties for retailers in passing higher costs through to customers point to a tough 2017 for UK grocers and supermarkets.”
READ: Week Ahead …
They said a lack of further deterioration in the outlook for Europe's economy and improving consumer confidence are likely to benefit the continental sector.
The analysts think the UK supermarket sector will likely grapple with a slowing economy pushing customers towards cheaper offerings or discounts.
All of the three UK listed-supermarket groups will unveil their latest trading news this week, with the sector still locked in the midst of a price war to combat the advance of the German-owned discount chains, Aldi and Lidl.
Highs and lows for Aldi …
Aldi reported its own Christmas trading news today, saying sales at its British business rose by over 15% in December compared to the same month in 2015, boosted by strong demand for its higher-end products and low-priced festive vegetables.
It said the outcome was also helped by strong sales of Christmas dinner essentials, particularly 19p packs of vegetables, such as carrots, sprouts and parsnips, and the sale of 13.5 million bottles of wine, champagne and Prosecco.
Aldi, along with fellow German discounter Lidl, has been winning UK market share from its bigger rivals Tesco PLC (LON:TSCO), J Sainsbury (LON:SBRY), Wal-Mart Stores Inc-owned (NYSE:WMT), and Morrisons.
But the German group saw slower sales growth through 2016 as the major supermarkets have cut their prices and new management teams have implemented major refocusings.