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How Will the Supermarkets Fare in 2013?

Tony Reading
January 9, 2013

LONDON -- We're in the midst of the Christmas reporting season, when analysts pore over the sector's festive sales. William Morrison (LSE: MRW) published its figures on Monday, J. Sainsbury (LSE: SBRY) reported today, and Tesco (LSE: TSCO) (NASDAQOTH: TSCDY) presents its figures on Thursday.

Tesco's numbers will, perhaps, be the most anticipated, as it marks the anniversary of its now infamous 2012 profits warning -- the company's first in 20 years.

But it would be wrong to put too much emphasis on Christmas trading. The Financial Times points out that only twice in the past five years has the supermarket chain with the best Christmas sales gone on to deliver the best share price performance in the following year. Supermarket sales are not as seasonal as, say, the drinks industry.

So what are the listed supermarkets' prospects in 2013? My guess is that there'll be one winner, one loser, and one that treads water.

Naughty corner
It's Morrisons' management who find themselves in the naughty corner this January. But although its 2.5% fall in like-for-like sales over Christmas have caught the headlines, there are more deep-seated issues that will weigh on its shares this year.

CEO Dalton Philips has finally admitted that the chain is behind the curve in both online grocery sales and convenience stores. Previously, the company's language had an air of "we'll wait and see what mistakes the others make." But Morrisons is now playing catch-up. That will take time and money.

It will also absorb management attention, and a number of high-profile defections last year suggest all may not be well at the top. In any case, a new management team will be bedding in. Among last year's departures were the commercial director who had only joined (from Waitrose) two years earlier, the marketing director, and the HR director. Finance director Richard Pennycook will leave in June.

And structurally, Morrisons' strengths are in the north of the country, which won't see much in the way of economic recovery this year.

Top of the class
If Morrisons is in the naughty corner, Sainsbury is currently top of the class -- at least among the three listed supermarket groups. In fact, the real star pupils are those associated with the two extremes of quality and value: John Lewis-owned Waitrose, and