Howard Josephs takes a look at the fierce battle between the big four supermarkets and their smaller rivals, and at what this reveals about consumers.
As Christmas is just around the corner, the recurring annual challenge is on to be a retail winner rather than a loser. This year, more than ever, the spotlight is on the high street, looking at the huge changes that have taken place in the way we Brits shop, and those to come. There are three keys ways in which the conventional understanding of the marketplace has fundamentally changed, particularly post-2008 and the global downturn.
Battle to be cheapest
With constant talk in the news about household budgets continuing to be squeezed, it's a favourite of supermarket CEOs to explain away poor results. Furthermore, budgetary concerns look set to continue to dominate over Christmas and into 2014, so don't expect this to go away; the big supermarkets certainly believe it won't. Aware of on-going pressures, Tesco, Sainsbury's and Waitrose all claim to price match each other, while Asda asserts itself to be at least 10% cheaper than the rest. But who really is the cheapest?
Tesco's Price Promise campaign, which began earlier this year, drew complaints from both Sainsbury's and Morrisons. In essence, Tesco guarantees to be the cheapest of the big four for a basket of shopping. If it isn't, it will give shoppers a voucher back for the difference. This voucher can only be redeemed in one of its stores, of course.
Yet there's nothing new in this idea: Sainsbury's has had a similar scheme in place for a couple of years. The key difference with Tesco's new scheme is that it includes own-label and fresh products, as well as branded ones. Sainsbury's and Morrisons complained to the ASA, claiming that this was not a fair comparison — their ownlabel products are not the same as Tesco's and cannot be compared like-for-like. The ASA, though, failed to resolve the issue: although it ruled in favour of Tesco, Sainsbury's appealed, claiming that the central premise of its complaint had not been addressed.
What remains unclear is how does the average shopper really know who is the cheapest? And do they really care? Is Sainsbury's "price perception" measurement a more reliable measure? Tesco, despite winning its spat with Sainsbury's, sees UK like-for-like sales, market share and profits still dropping and as yet the campaign seems not to have made any difference. Meanwhile Sainsbury's and Waitrose (admittedly both from a lower base) are showing consistent growth.
Brand matters, or does it?
The conventional wisdom has been that for middle-class shoppers in particular brand is king when it comes to food. The impressive sales growth of "discount" retailers such as Aldi and Lidl, however, has challenged this. It was previously thought that such stores were the preserve of poorer or lower class shoppers, but a string of awards for both products and in-store experience has proved this wrong.
Aldi, in particular, has seen sales rise by more than 30% this year alone. It has also won the prestigious Which? Best Supermarket award in 2012 and 2013. I have frequently spoken to shoppers from around the UK and across social grades who wax lyrical about the quality of its products and amazingly low prices by comparison to the bigger stores.
At first they were more than happy to use Aldi products "hidden" — for cooking and behind the scenes at home. Then they moved to decanting them before placing them out on the table in-front of guests. Now they are more than happy to celebrate the products and boast about what great purchases they have made. The brand has a bold new air of respectability, challenging previously held assumptions about both "real" brands and supermarket branded food.
Online: who will blink first?
Earlier this year Morrisons announced that it would start selling food online by the end of 2013 (we are still awaiting the launch) in a joint partnership with Ocado, responding to falls in sales, market share and profits. Morrisons is years behind the game compared to its key rivals, Tesco, Asda and Sainsbury's, all of whom have well-established online arms. Even Waitrose is selling food online in some areas. Therefore, on the face of it using established and well-tested Ocado technology and fulfilment seems like a sensible move.
However, is being late to the party a help or a hindrance? Online food sales may be very fast-growing (even Amazon is set to launch its grocery offer soon), but it's still unclear whether it will actually be profitable in the long term, or at least as profitable as operating its traditional, large-format supermarkets.
While it usually costs shoppers around £2-£6 for delivery, analysts reckon that the real cost to supermarkets is more like £15 when you take into account the price of dedicated pickers, vans and investment in technology. So they're actually making a loss for each order they fulfil. Ocado itself still hasn't made a profit. It is almost inevitable that for online grocery to prosper in the long terms, delivery prices will have to significantly rise. However, will shoppers be willing to bear these price rises in return for the benefits that online shopping brings? It's certainly at odds with the clamour to be the cheapest.
What does this all mean?
See has found while talking to shoppers in recent years that they are becoming increasingly savvy and often ignore pricing claims made by supermarkets. Instead, there are some new and interesting drivers of choice: quality matters, as do specific offers, together with convenience (visiting the nearest store or one along their journey). At the same time, shoppers actually prefer to spread their money between different stores and products in order to alleviate boredom and to experience new things. They are also actively using vouchers, discounts and deals more than ever, especially via mobile.
The increasingly sophisticated behaviour of consumers and ever-changing nature of the marketplace means it's becoming more difficult than ever to predict who the winners and losers are going to be. What is clear is that Christmas looks set to be as fascinating as ever, as will 2014. Happy shopping one-and-all!
Founding Director, See Research & Planning
This article was first published in InBrief magazine, November 2013
Copyright © Association for Qualitative Research, 2013