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Christmas sales fail to bring cheer to UK supermarkets

Christmas comes just once a year – but the problems affecting the big U.K. supermarkets are expected to linger all year long.

The travails of Tesco, the biggest U.K. grocer, have been well-documented, and it is expected to announce early plans for a strategic revamp, along with its Christmas trading figures, on Thursday.

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Dave Lewis, its new chief executive, has been in charge for a little over three months, but has already had to deal with a high-profile accounting scandal and profit warnings. He is expected to announce job cuts, office closures and a change to its relationships with suppliers.

Some of its problems are far from unique. Marks & Spencer (M&S), also reporting Christmas trading on Thursday, J. Sainsbury, reporting on Wednesday, Morrisons and Asda, which is part of WalMart, share a number of issues which are plaguing the U.K. retail landscape.

Tesco's like-for-like sales, excluding petrol, are expected to be around 3.5 percent lower over the Christmas period than in the previous year, with Sainsbury's down 3.8 percent, according to Pradeep Pratti, analyst at Citi.

While M&S food sales are forecast to have risen slightly, sales of clothing at the retailer are expected to drag overall sales figures down.

Here, we take a look at some of the key problems facing the best-known facades on the U.K. supermarket landscape.

Consumer changes

A big weekly shop to an out-of-town location seems to have been replaced by a series of smaller trips to nearby supermarkets. This puts Tesco, famed for its behemoth hypermarkets, at a disadvantage.

M&S, which has historically been a shop where people top up their main weekly groceries, hopes to benefit from this trend.

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Discounters rise

German players Aldi and Lidl, helped out by the weaker euro making it more profitable to buy goods in Europe and sell them in sterling, have lured supermarket shoppers from across social-class boundaries. Lower-earners came as Tesco and Morrisons lost their focus on low prices; the middle classes were lured by cheap Prosecco.

Faced with a similar challenge, rivals in Germany never recouped the market share lost to the more aggressive discounters, although their share eventually stabilised at around 40 percent. While their growth seems to have started slowing in recent months, there can be little doubt that the German discounters are here to stay.

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Online ownership

This Christmas, more U.K. consumers than ever got their Christmas dinner ingredients online – but they may have been put off doing so again by a series of high-profile delivery failures. Sainsbury's, Asda and Waitrose all reported technical problems with online ordering over the festive period.

Property push

The U.K.'s four biggest supermarket chains are sitting on 46.61 million square feet of sites earmarked for development – but only 6 percent of this is currently being turned into stores, according to figures from commercial property firm CBRE.

There is hope that some of the available space may be convertible for use in online retail.

Still, if a chain accepts that it won't be able to build on a particular site, it will have to take a writedown on the value of its property portfolio, which will in turn look rather unflattering in its results. This could result in between £1-2 billion of writedowns at Tesco, according to analysts.

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