Coles and Woolworths' sales will grow by as much as 5 per cent in the next five years as Australian households buy more supermarket food to cut household costs and offset rising utility bills and childcare costs.
Broker Bank of America Merrill Lynch said wages and disposable income growth was at 15-year lows and history proved the major supermarkets benefited from tough economic conditions as people opted to eat at home more.
Analyst David Errington told clients the major supermarket brands had cut their prices to avoid losing customers to Aldi and Costco, mitigating the impact of these relatively new players and he said the threat of Amazon was still some years away.
"We don't see Amazon being a major threat to supermarkets, particularly over the coming five-year period," Mr Errington said.
"Australians' preference to buy food online is at relatively low levels and the time required for a new participant to establish the necessary distribution and supplier capabilities in Australia is lengthy."
The broker said it believed the threat of Amazon was "over-played" and in all its discussions with suppliers it had not come across a single business that had been approached by the digital disruptor.
Merrill Lynch claims the discounters are no longer growing at the levels they were two or three years ago now that the major supermarkets have "adjusted" and they're only likely to growth at industry growth rates in the future.
Sales growth in the supermarket sector has averaged about 4 per cent in the past five years however now Woolworths' turnaround strategy is gaining traction and its $1 billion investment in prices is tapering off, Merrill Lynch expects supermarket sales at Coles and Woolworths could increase by between 4 and 5 per cent in the next five years.
The broker said big increases in the cost of doing business for independent grocery operators, including butchers and green-grocers were also supporting the major grocery chains.
"We see a move in share from independents to major supermarkets and we expect this trend to accelerate over the coming five-year period," Mr Errington said.
"We think the major supermarkets are well positioned to capture market share from specialists and ... grow at rates above industry levels for at least five years.
"Over the next five-year period the major supermarkets will continue stepping up their competitive offer in order to continue gaining market share at the expense of the independents and specialists that we see slowly exiting the Australian market."
Coles told suppliers at a recent meeting that its customers would not accept price increases and suppliers report it's almost impossible to push through price increases even as energy costs and input costs climb.
Coles owner Wesfarmers will release the supermarket's third-quarter sales near the end of April after Woolworths beat Coles on a like-for-like sales basis for the first time in 30 quarters in the second quarter of this financial year.
