There has been much debate recently about whether supermarkets are a good investment. The news that Warren Buffett has reduced his stake in Tesco (LSE:TSCO) (NASDAQOTH: TSCDY.US) has just added to this debate. In this article, I try to work out why he has sold shares in Tesco.
Buffett bought Tesco because he thought that supermarkets are gaining market share from corner shops and the high street, plus Tesco is expanding in the rapidly growing retail sectors of emerging markets.
A fragmenting retail market
But the reality has been a whole lot harsher. In the UK, the big supermarket chains (Tesco, Asda, Sainsburys, Morrisons) have not only been competing fiercely against each other, but against both high and low-end rivals such as Aldi, Lidl and Waitrose. Whereas a decade ago it seemed the grocery market was being gobbled up by fewer and bigger players, it has now begun to fragment again. Because of this, Tesco is no longer growing in the UK. What about emerging markets? Well, growth here has also been lacklustre. Profits in both Europe and Asia have fallen.
http://www.iii.co.uk/articles/124653/why-warren-buffett-sold-tesco-plc
