What Did You Do in the Supermarket Wars, Daddy?

We keep banging on about the havoc caused by the hard discounters in the UK grocery market. Well, that’s because they are very disruptive and will continue to be so and so will others!

Back in 2011, Sainsbury’s launched its “Brand Match” initiative which countered quite successfully the perception that it was pricey relative to its mainstream competitors Asda and Tesco. The response was a flurry of counter price matching moves by Asda and Tesco and all driven by fancy “data-scraping” technology that could deliver, at the till (for Sainsbury’s and Tesco, at least) coupons that provided a refund for the price difference if there was one between the retailer and its nearest competitors.

The Aldi response to this was characteristically simple with its low technology “Swap & Save” challenge – swap your shopping to Aldi and, over an 8 week period, you (not some  fancy computer algorithm!) work out how much you’ve saved. Aldi claim that the results showing a 20-40% saving over the Big Four retailers! There’s been legal tussles about the accuracy and comparability of this but Aldi is sticking to its guns! The Daily Mail (yes, we know, not the bastion of journalistic credibility)  screamed “Aldi’s still the cheapest  … even after the price war: Budget chain remains up to 30% cheaper than “big five” supermarkets” (March, 2015).

Source Kantar Worldpanel 2014-2015

So, after huge investments in lower prices by the big guys, Aldi/Lidl are still significantly cheaper. Tesco et al have made some inroads: the rate of year-on-year sales losses for the top 4 have reduced; and the rate of sales growth for the discounters has moderated – but, wouldn’t you expect this (just as we don’t expect China to continue its frenetic growth!). Recent buoyancy in the UK economy is trickling down albeit slowly to provide increased spending money for ordinary households and the sharp reduction in energy prices has been helpful, too. But, savvy shoppers have been well-tutored by the discounters and a shift back to halcyon days of profligate spending is unlikely.

In grocery retailing we don’t expect disruptive innovation but incremental innovation and evolutionary change does seem to be accelerating – the wheel of retailing continues to turn. So, expect a star burst of activities to disrupt continually the retail scene:

• With hard discounters taking more market share;
• a rationalizing pound store sector expanding grocery offers,  like mice nibbling the cheese;
• non-grocery retailers, such as BHS edging into convenience grocery;
• food retail and food service converging – with restaurants fighting back in response to retailers trampling on the traditional turf of food service;
• artisan food businesses getting better at on-line and direct communication with consumers;
• a discount gourmet chain like Trader Joe’s setting up in UK (watch out, Waitrose!);
• on-line grocery continuing to erode big box shopping volumes;
• convenience formats doing well and the Coop recovers on the back of better management and the “localness” of its store portfolio;
• Booker emerges as a bona fide convenience retailer with its purchase of Londis and Budgens;
• and there’ll be more!

Oh, it’s such an exciting industry to be in although the major supermarket chains may prefer a more reflective period of calm! We don’t think they are going to be able to enjoy such a luxury. Their business models are based on the principle of sales growth and not fragmentation of the shopping basket. So, buckle up seatbelts and crash hats on!