Analysis-As Tesco and Sainsbury's seize the moment, UK grocery laggards face uphill task

investing.com:

By James Davey

LONDON (Reuters) — As British shoppers try to stretch their spending further each week, supermarket leaders Tesco (OTC:TSCDY) and Sainsbury's are using their superior financial firepower to win over customers from debt-laden rivals struggling to compete.

A recent survey from consumer group Which? found the two groups outperformed their privately owned rivals Asda and Morrisons on key metrics including store appearance, quality of products and stock availability, helping them sell more goods.

And with Asda and Morrisons both now owned by private equity and weighed down by the increasing cost of servicing debt, Tesco and Sainsbury's are looking to take advantage. They are keeping a lid on prices, agreeing longer deals with suppliers, investing in technology and automation, and navigating a still tight labour market by paying higher wages.

Alex Clifton, 20, a student in the English City of Bristol, is sticking with Tesco, drawn by its loyalty scheme.

«Since Tesco stepped up Clubcard Prices I don't even consider shopping at Asda or Morrisons because not only do you get better quality food but now it's also cheaper,» he said.

Weekly pricing data from industry publication The Grocer regularly shows Tesco and Sainsbury's are cheaper once savings for members of Tesco's Clubcard and Sainsbury's' Nectar are taken into account.

Both schemes are driving volume growth, giving them more leverage with suppliers. More five and 10-year deals with suppliers are driving more competitive prices and further volume growth and consequently even better deals with suppliers. Britain's 230 billion pound ($295 billion) grocery market has long been fiercely competitive, driven by the fast-growing German-owned discounters Aldi and