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The UK Retail Sector – Riding the Perfect Storm

Author: Emma Hancocks Emma is a Senior Consultant at Promar International and Committee Member for CIM Food Drink and Agriculture Group

The UK Retail Sector – Riding the Perfect Storm

For many, the signal that the Christmas season is well and truly on its way is the John Lewis television advert; festive music in supermarkets; or the Secret Santa email doing the rounds.  For me though, a sign that we are heading towards Christmas, is the annual talk by Ed Garner from Kantar Worldpanel for the Chartered Institute of Marketing Food, Drink & Agriculture Group.  This has become somewhat of a tradition for the group and is one of the most eagerly anticipated events in the calendar.

This year the focus of the talk was the ‘Perfect Storm’ within the retail industry, with discounters moving away from their historic perception of being cheap and low quality, to being seen as mainstream retailers.  Over the last year, both Aldi, and Lidl saw their market share increase at the expense of the Big 4 supermarkets (Tesco, Sainsbury’s, Asda, and Morrisons).  In fact, the combined market share of Aldi and Lidl (10%) is catching up Morrisons’s current share of 10.9%, and could soon overtake the Northern based retailer.

Figure 1: UK Grocery Retail Market Share (source: Kantar)

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In order to achieve this continued positive growth rate, it seems that the discounters are shaking off all of their old perceptions and becoming more aligned with modern retail formats:

  • Award winning products – entry level products at Aldi and Lidl have won numerous industry awards over recent years and so showing customers that there is more to their offerings than cheap prices.  In comparison, the Big 4’s budget own lines (E.g. Tesco Value and Sainsbury’s Basics) are in decline, as they are perceived as the cheapest price and lowest quality products offered in the store
  • New stores – gone are the days of cardboard packaging piled high and a somewhat clinical shopping experience.  New stores being opened by both discounters are seeing a focus on presentation and a shopper experience akin to the Big 4
  • Niche – both Aldi and Lidl are renowned for offering weird and wonderful products in their limited time ‘middle of the shop’ offers.  This encourages consumers to pop in to see what is being sold each week.  At Christmas time, the focus here is on authentic traditional German festive items -  a niche which other UK retailers lack
  • Main Food Shop – Discounters are increasingly becoming the place for consumers main food shop with people then going on to the Big 4 to ‘finish off’ their shopping.  Both discounters overtrade on their fresh and chilled products, with consumers typically going elsewhere for branded items such as alcohol and pet food
  • Every Day Low Prices -  45% of the Big 4’s sales come from some sort of price promotion.  In comparison, at Lidl this is 15% and at Aldi less than 10%.  Consumers like the assurance that what they pay for a shop one week is going to be the same the week after.  It provides a more smoother sales line for the discounters in which to plan and forecast, and also makes it easier for suppliers

The Big 4 are struggling to compete against the discounters.  Morrisons in particular appear to be getting rid of all their points of differentiation, such as Match & More, the ‘theatre’ of misting their fresh produce and cutting their links with their own farms.  Outside of the Big 4, Waitrose are doing well by concentrating on the fact that they are, in effect, everything in a retailer that the discounters are not.  They have continued to focus on the overall consumer experience of shopping which has helped to boost their market share.

After coming to this event for a number of years now, it was interesting to see how the focus has now been so heavily shifted towards the discount sector.  A previously considered ‘short lived’ growth in their market share has developed into them becoming part of the UK mainstream retail sector.  The interesting factor though is that there is still room left to grow for both Aldi and Lidl within the sector – and I for one am keen to see how they take their brands to the next level over the coming years.  And with my start of the Christmas season well and truly begun it’s now time to sit back with a mulled wine and mince pie…discount branded, of course!