Supermarkets in the United Kingdom

Supermarkets in the United Kingdom-Dissertation Writing help

Headlines

·         Value sales grow 2% in current terms to reach just over £43 billion in 2008

·         Supermarkets battle in price wars as a result of rising food prices

·         Supermarkets vie to be greenest and most ethical, dominated by “Big Four” – Tesco, Sainsbury, Asda, Morrisons

·         Supermarket outlet and value growth predicted to be flat over forecast period, losing share to convenience brands

Overview

·         Supermarkets continued to engage in a food price war to ease the pain of soaring grocery bills in 2008. Asda, one of the Big Four supermarket players, fired the first shot by introducing a range of staple foods priced under £0.50, including a loaf of bread cut to £0.30 and sausages to sell for 6 pence. Tesco and Sainsbury’s responded immediately, matching Asda’s high-profile media advertisements with promotion of their own offers. As food prices increased supermarkets passed on these rising costs to customers. However, the latest promotions indicate a change of tactics. This follows the success of discount brands such as Aldi and Lidl as shoppers hunt for the best food prices to keep domestic costs low.

·         Growth in supermarket sales progressed at a slower pace in 2008. The way consumers shop for food changed markedly over the review period. Food shopping behaviour polarised between large, high-spend shopping trips and an increase in basket-only trips in smaller stores. The result is fewer visits and lower expenditure in the traditional mid-size outlets typical of the supermarket environment.

·         The number of supermarket openings slowed in 2008 as major players focused on both the local convenience store environment and the larger hypermarket format.

·         Diversification into non-food products was a symptom of the maturity of the UK food market. The non-food offer of supermarkets is now extremely wide, including financial services, DVDs and CDs, clothing and books. The price war being waged between Britain’s leading supermarkets has also moved into non-food categories, as exemplified in the mobile phone niche, as Asda halved its prices but Tesco claims to still offer the best range and prices for phones. Asda and Tesco continue to perform well with their respective George and F&F clothing lines, receiving a greater number of regular customers than BHS, Gap and H&M, according to a report by Verdict Consulting in 2008. However, Primark and New look remain prime competitors in clothing, yet as supermarkets continue to offer convenience and very competitive prices, cost- and time-conscious consumers will inevitably shop for food and non-food items offered under one roof. This is reflected in the growth of the non-grocery split, increasing its share to over 10%.

·         Supermarket chain Asda has launched an entire online non-food arm – Asda Direct – selling products ranging from clothes to power tools in order to compete with Tesco and Argos. This expansion continues in line with supermarkets moving away from the traditional selling of solely groceries, into higher margin non-food items. This is to move in-store in a matter of time attracting a greater number of consumers to shop for non-grocery items in this retail channel. This multi-channel strategy mirrors Tesco Direct’s launch two years ago, and now J Sainsbury looks to launch its Tu clothing range online.

·         Tesco remained the largest player in the supermarkets environment, accounting for a value share of 39% in 2008. The key to its success is based on its broad range of food and non-food products, which reach out to all consumer bases. This was further developed by the 2008 introduction of its new “discount brands” range, aiming to claw back lost ground from discounters such as Aldi and Lidl. The new discount lines are not as cheap as the Tesco Value range, yet are more affordable than branded products. This represents a bold move for Tesco, whose last major launch was 15 years ago with the introduction of its Tesco Value offer, yet as consumers are forming a “credit crunch” mindset, affordable pricing may prove extremely successful. The chain is not passing through the recession unscathed, however, as UK sales growth slowed to 2% in the three months to November, compared with 4% and 5% increases respectively in previous quarters. The chain attributes this slowdown to the launch of its new discount brands, and also its greater involvement in non-food items, which have been more severely hit by the downturn, despite seeing improved volume sales.

·         In the face of this Morrisons is proving to be one of the winners of the economic downturn as it reported a sharp rise in sales with 8% growth in the final quarter of 2008, excluding petrol. This success was attributed to its range of cheaper ‘Price Crunch’ products, which are reported to be attracting an additional 700,000 people to visit the company’s stores across the UK. Predictions, however, suggest that this trend will be difficult to sustain in a more competitive environment, as Tesco in particular retaliates with discount ranges. In attempt to counter this, plans were announced for Morrisons to purchase 38 stores from Co-op following its takeover of Somerfield in the summer of 2008.

·         Sainsbury’s shares in terms of outlets, space and retail value were slow in expanding in the supermarket environment over the review period, and may struggle as discounters are increasingly targeting the ABC1 middle-class consumer segment, on whose loyalty Sainsbury’s has traditionally relied.

·         Food retailers continue to be shaped by the notable consumer trends of health and wellness, convenience and ethical concerns. However, organic sales have become the latest casualty in the credit crunch, experiencing a decline as shoppers try to cut costs to balance household budgets, and are thus less likely to pay for greater environmental and other ethical benefits. Suppliers are also exiting organic produce en masse, in an attempt to cut back costs, thus affecting the supply side with a decline in production of organic goods. However, retailers including Asda, the Co-operative Group, Sainsbury and Waitrose continue to host promotions focusing on basic brands, as evidence emerges that consumers are now favouring cheaper produce. The 2007 launch of US supermarket chain Whole Foods, which opened its designer flagship store in Kensington, London, emphasised organic, natural and fairtrade products and was thought to be well-fitting for the affluent consumer base of its location. However, it has reported a decline in sales as demand for organic products has stalled as an increasing number of people reign in expenditure and shop at discounters.

·         Supermarkets continue to take responsibility for their actions and are introducing initiatives to sustain the environment. In conjunction with the government’s desire to reduce the amount of plastic bags used through grocery outlets, grocers have begun to limit the number of bags used via different methods. M&S charges £0.05 for every bag issued, while Tesco aims to stop the mass distribution of plastic carrier bags in its larger stores by introducing a “bag on request” scheme – bags are kept out of sight under the tills and only given out if customers specifically ask for them. Sainsbury’s has also joined this initiative, as well as launching an SMS service aimed at boosting carrier bag re-use by reminding customers to bring bags with them when they shop. Customers are able to sign up to receive weekly ‘bag reminder’ SMS messages by texting the usual time and day of their shopping.

·         Tesco’s developed loyalty card scheme continues to see much success, giving the retailer detailed insight into its customers’ shopping habits. The company has privately agreed to buy the 50% of Tesco Personal Finance that it does not already own from Royal Bank of Scotland, which will enable it to provide mortgages and current accounts to customers. The move is understood to address the loss of consumer confidence in banks as they can turn to a trusted brand to provide services usually offered by traditional banks.

·         Waitrose followed Marks & Spencer’s food promotion lead, offering a ‘Dine for £10.00’ promotion, enabling customers to buy two main courses, a dessert and a bottle of wine for only £10.00. Marks & Spencer acknowledged this fact by retaliating with press advertisements highlighting that its £10.00 dine-in offer was the ‘original one’. In October 2008 Waitrose went further to challenge Marks & Spencer by announcing the opening of hundreds of convenience stores to directly rival Marks & Spencer’s Simply Food outlets, which dominate the premium convenience store segment. The first store opened in Nottingham in November, with subsequent outlets due to follow.

·         The credit crunch is persuading an increasing number of consumers, including those in the middle income segment, to shop at discounters such as Aldi and Lidl, thus increasing the competition between multiple grocers. Symptoms of this deteriorating retail climate included a number of well-known high street names going into administration towards the end of 2008, including Woolworths, Zavvi and Whittard, with even iconic brands such as Marks & Spencer hit as it moved to close 25 of its Simply Food outlets and two regular stores. Consumers are increasingly turning to private label products, discounted offerings and promotional goods, increasing the threat posed by discounters, and leading to supermarket price wars, as well as diversification within grocery brands. Tesco’s hit back by expanding its lines to introduce a “discount range”, while Waitrose looks to move into the convenience format in order to capture more on-the-go shoppers.

·         The growth of the discounter and fixed price stores in the UK has encouraged consumers to shop in a number of different outlets for their grocery needs. This has enabled regional supermarket chains that compete strongly on price to compete with larger, national chains. One example is Home Bargins, a Liverpool-based chain owned by TJ Morris. The stores offer a wide range of branded goods at cheap prices, although none are loss leaders, and is able to offer the prices it does through changing its product mix on the basis of what is available to it at prices that enable it to make a margin.

·         Forecast growth drivers are expected to retain price competition as a focus as consumers continue to turn to discounters over traditional rivals in search of cheaper goods, and decide to cut back on non-essentials such as CDs and clothes, further hitting names such as Tesco and Sainsbury. With food price inflation also standing at around 7% – well above the official level for the three months leading to July 2008 – it provided another clear incentive for consumers to turn to discounters and drive the success of retailers posting the clearest price messages. Growth among discounters was further reported to have come about as a result of new stores being built and new consumers being attracted to such outlets, rather than spending increases among existing consumers, illustrating the clear movement from more traditional supermarket options.

·         Multiple grocers have put further pressure on independent food specialists, which have carved out niches with premium quality and locally sourced foods, by introducing these initiatives into their own stores. The current economic climate will also make it more difficult for these independents to record positive growth, as consumers opt to cut back on premium goods.

·         Retailers with supermarket formats will face a number of serious and paradoxical challenges going into the forecast period. They will have to balance price considerations with range expansion and more flexible opening hours, and clear market positioning with changing UK shopping habits, as consumers increasingly seek 1-stop options for all their grocery and non-grocery needs, while reducing expenditure on premium and non-essential items in the face of recession.