Is the UK grocery market going through irreversible change?
It’s not been a great week for some of the supermarket giants with a mix of news.
Sir Ken Morrison had a public spat last week at the AGM of Morrison’s likening the CEO’s presentation to containing more bullshit than Sir Ken’s herd of cattle. Across at Tesco a lot of humble pie is being consumed – probably sourced from Waitrose – by their CEO after more bad news on the turnover, profit and brand share data.
Meanwhile, I would guess, the CEOs of Waitrose, Aldi and Lidl are all being slapped on the back for another progressive and successful year. Also let us not forget the food side of M&S is working well, compensating for the decline in their clothing offering.
It could be the market for grocery has reached saturation point with the rampant growth of smaller local stores, on-line ordering and home delivery – maxing out superstores at a time when pressure has been on the public at large in terms of spending power. If saturation is the point the market has reached, it will lead to blood and gore for the big players as there won’t be enough to go around.
Tesco, Asda, Morrison’s, Sainsbury and the Co-op are in the crowded middle ground with pressure from above from Waitrose and M&S and from below from Lidl, Aldi and Iceland. The middle ground is highly competitive with both Tesco and Morrison’s going down the price route in an attempt to stop the rise of the discounters. That must mean lower margins and therefore lower profits.
In marketing parlance the various brands are being re-positioned by a change in market structure.
An article in last weekend’s Financial Times suggested people of all walks of life are happily popping in to Aldi and Lidl for branded bargains whilst staying with their supermarket of choice for the weekly shop. This promiscuous behaviour is perhaps a reflection on the wider world as we all can surf the internet checking out prices and buying from the supplier with the best deal. I went to a drinks party at someone’s home last week where the host proudly explained the fizzy stuff had been sourced from one of the German stores whereas the nibbles came from Waitrose!
So where will all this lead to in coming years? Here are some fairly certain trends.
First off Aldi and Lidl will continue to grow as they have a relatively small share today and fewer stores. Assuming they stick to their current business strategies and add more stores over time they will take share away from other players. But it is very unlikely they will grow the market.
Secondly, one of the home delivery operators will do an Aldi/Lidl – limited range of (heavy) branded goods at discount prices.
Third, one of the big players will re-trench and pursue profit rather than scale – Morrison’s must be a candidate.
Fourth, Waitrose will continue to expand, with care on location and avoid any cannibalisation of business by over-expanding.
Whilst the economic situation in recent years has been a big dampener for many of us it doesn’t follow that things will ‘get back to normal’ once we are back on our feet again. Things change, people adopt different habits, learn new tricks and, my prediction, is the grocery market is living through an irreversible period of change too.
The clock will not turn back so the big brands have to consider where they sit in the new post-recession world.