The war on the COVID-19 pandemic is all consuming, but ASX investors shouldn't forget the other battle that's raging between the supermarkets.
While the Woolworths Group Ltd (ASX: WOW) share price, Coles Group Ltd (ASX: COL) share price and Metcash Limited (ASX: MTS) share price are outperforming S&P/ASX 200 Index (Index:^AXJO) (ASX:XJO), fierce rivalries aren't dead.
This is despite the sector holding up better than most during this coronavirus-induced bear market. Investors are seeking out stocks with defensive businesses and supermarkets are benefiting from panic buying of daily necessities.
Woolworths slipping
But Woolies may be losing ground to its rivals, according to UBS. The broker conducted its eighth supermarket survey of over 1,000 shoppers in February.
This was before the COVID-19 outbreak but UBS believes it still provides insights into changing customer perceptions and the factors behind the recent lift in Coles' like-for-like sales.
The broker highlights two key findings from the survey.
Shoppers favouring Coles
The first is that customers' perception of Coles improved considerably due to the supermarket's focus on product range, loyalty and everyday low prices (EDLP). This finding surprised the broker.
The second is that shoppers are less motivated by promotions than they have been before. It's the non-price elements that are coming to the fore.
What this means is that the laggards have an opportunity to play catch-up by lifting their game in the non-price areas.
Prices less important
Also, this bodes well for supermarket sales as promotions often mean lower price and margins.
UBS estimates that every 5 percentage point reduction in promos is equivalent to a circa 35 basis point lift to price inflation. Inflation is good for supermarkets.
The lower interest in prices isn't surprising during the coronavirus panic buying spree, but UBS thinks this will persist even after the medical crisis is over.
Other hidden surprises
There are a few other surprising findings in the survey. There seems to be a divergence in perceptions towards Coles.
Suppliers don't share the same positive view of the supermarket compared to consumers, who are choosing Coles over Woolworths.
My own experience doesn't gel with this finding either. Recently, I find Woolies is much better stocked than Coles in my area, so I wonder if this trend will hold.
Dark horse
Shoppers are also returning to IGA stores, which are under the Metcash umbrella. This is due to better store conditions, improved fresh offer and improved affordability – things that IGA have been weak at before.
The other point worth highlighting is that Aldi is stagnating. The German challenger's move to improve its fresh food selection isn't haven't a big impact.
While the results are good news for Coles, UBS rates the stock as "neutral", while it recommends Metcash and Woolworths as "buy".
