UK grocers: waiting for Tesco The strategic path against the discounters is fogbound until Tesco shows its hand The race is on. The distance to the finish is, alas, unknown. Shares in UK grocers rallied on Thursday after Wm Morrison's third-quarter earnings report, though bad, was not quite as bad as feared. Are we near the bottom? Price to earnings valuations for the sector, at around 10, are broadly in line with long-term averages. The discounters Lidl and Aldi have, however, changed the market. It is unclear what normal margins and earnings will be in years to come. The mid-market grocers - Morrison, Sainsbury, Asda and Tesco - are at least no longer ignoring the discounters, which have a 5.7 per cent market share in the UK, according to Euromonitor. Morrison says its strategy against the discounters is on track. It is cutting costs, product range and, most critically, price - while still offering a supermarket experience. It is too early to tell if the plan is working. The strategy has worked before, though - in France. Carrefour and Leclerc, under attack from discounters seven or eight years ago, whacked prices, costs and product lines. In the past four years the discounters" market share in France is down almost 2 percentage points, according to LEK research consultancy. Sainburys has a slightly different plan. It has created a joint venture with Dansk Supermarked to bring Netto discount stores back to the UK. Four years after the brand left the UK, the first Netto store has opened in Leeds. There are plans for 14 more stores by the end of next year. Sainsburys will help secure locations and Dansk will bring its discounting expertise. The big uncertainty is Tesco. New chief executive Dave Lewis is only a couple of months into the job (and he has spent most of that time dealing with an accounting problem) so he has not yet had a chance to formulate and roll out a new strategy. If he decides to follow Morrison in aggressively cutting prices, there is more pain ahead all around. But until Tesco makes its move, the road ahead still lies under fog.