Supermarkets losing out to value retailers
Over a third of shoppers have switched from their usual grocery supermarkets to ‘value’ retailers, as once-loyal customers look to trim their household expenses by turning to cheaper alternatives. Article by Andy Wood, MD of GI Insight.
There is little doubt that supermarkets have been weathering the recession rather well with many reporting strong profits and increased sales. With a large proportion of consumers looking to avoid costly nights out and takeaways, many of the big supermarkets have rushed to fill the void – with the result being that, overall, the major chains have seen their grocery sales lifted by 4-5% year-on-year in recent months, according to figures from market research firms Nielsen and TNS Global.
Below the surface of these seemingly positive figures, however, there has been a significant underlying shift that could be troubling for some segments of the retail grocery sector. GI Insight surveyed a broad spectrum of consumers and found that more than a third of shoppers have switched from their usual grocery supermarkets to ‘value’ retailers, as once-loyal customers look to trim their household expenses by turning to cheaper alternatives.
This has been occurring at different levels in the grocery sector and has become more pronounced as the recession has progressed. The latest GI Insight figures show a higher proportion of people moving to ‘value’ alternatives for the long term than a similar study conducted earlier in the year. It found that 36% of UK consumers have gone downmarket with their grocery shopping for a significant portion of their food purchases, in an effort to economise as the recession has dragged on.
The study also found that, now that the economic outlook is improving, only 10% of UK consumers plan to move back ‘upmarket’ within the next year, representing a net loss for higher-end supermarkets of 26% in the longer term. A similar study conducted by GI Insight in May found that a net total of 21% of shoppers had moved downmarket and planned to stay there. These latest results indicate that, as the UK continues to face a difficult economic climate, more consumers who have moved to less costly alternatives are now beginning to see this as a long-term solution.
There is no question that, as they have faced one of the deepest recessions in recent decades, consumers have become far more price conscious. Even if there are some purchases where consumers are determined to maintain quality over price – perhaps their choice of coffee, a perfume, organic food, a favourite entertainment, a clothing brand, a particular electronic gadget – there will equally be areas where each chooses to economise. And food is one area where many seem to have decided they can cut overall spend.
The main beneficiaries in the retail grocery sector of this drive to economise have been the large-scale supermarkets at the lower end of the price spectrum, but at the premium end certain players have also made gains as they have successfully marketed own-label brands while encouraging customers to treat themselves to special luxury food products to compensate for curtailed spending elsewhere.
Over the past year consumers have looked to cheaper alternatives such as Morrisons and ASDA, or moved even further downmarket to the likes of Lidl and Aldi. Those retail grocery chains that can be classed as everyday low-price players – namely Asda and Morrisons – have been the big winners in the move downmarket by consumers, seeing their sales climb by 6.6% and 8.5% respectively, according to TNS Worldpanel figures for the 12 weeks to 1 November 2009. During this period number two player Asda saw its market share move to 17.3% from 16.9% year-on-year while Morrisons’ grew to 11.7% from 11.3%, according to TNS. But lower-end basic outlets such as Iceland, Lidl and Aldi have not been far behind them with sales rises of between 5.5% to 6.6% over the same period.
At upper end of the grocery market, Waitrose has also managed to have a good recession with the introduction of its essential Waitrose budget range aimed at stemming customer churn. Waitrose has also been hugely successful at pushing its top ranges to cater for those customers looking for a dining out experience at home,. Its sales have climbed 12.3% while its market share has risen to 4% from 3.7% year-on-year in the 12 weeks to 1 November, the TNS figures show.
Also at the premium end of the grocery market, Marks and Spencer’s market share has remained stable at 3.6% year-on-year, figures from Nielsen for the 12 weeks ending 1 November show.
Tesco stays at top
Meanwhile, Tesco has maintained its position as the top supermarket, consistently owning over 30% market share, A valuable tool in all of this retail grocery market turmoil is the customer loyalty programme. While earlier in the year, Tesco’s market share dipped in the face of consumers going downmarket looking for better deals, the market leader has mounted a fightback and managed to turn things around. In November, Tesco grew sales by 4.7% according to the TNS figures, which can largely be attributed to the aggressive relaunch of Tesco’s Clubcard loyalty scheme, which started offering customers double reward points.
Sainsbury’s, which straddles the premium and mid-price categories, has also introduced new elements and innovations to its customer loyalty programme – which is tied into Nectar – after seeing year-on-year sales growth of 5.6% for the period ending 1 November when its market share moved to 15.9% from 15.7%, according to TNS figures.
Sainsbury’s recently announced coupon-based loyalty scheme is likely to have a significant impact on customer retention over the coming months. The scheme takes advantage of the consumer’s current taste for price promotions and involves the distribution of money-off coupons at the till. Data from the Nectar scheme as well as transactional data will allow the store to tailor offers to the individual shopper.
Promotions and coupons have been a big attraction for cash-strapped consumer in the recession, and as shoppers continue to be cautious in the face of economic recovery, this move by Sainsbury’s is a shrewd one. It works on the same principle as the buy one get one later concept announced recently by Tesco, (though Sainsbury’s beat Tesco to it when it came to actually implementing such an offer). This type of incentive encourages the shopper to make repeat visits to claim their free items, or use their money-off coupons.
Unlike Tesco and Sainsbury, Asda has actively rejected the idea of a card-based loyalty scheme and Waitrose does not have its own loyalty scheme (although the John Lewis partnership card can be used to earn vouchers when spending on the card). However, this year both have put a great deal of emphasis on customer engagement. This has been especially evident online with MyWaitrose enabling customers to interact with the brand and have an influence on product and service innovation, while Your Asda aims for something very similar. Among the customer engagement schemes at Asda is one that encourages shoppers to submit money-saving ideas to the company. If an idea is adopted, the person who suggested it will enjoy 5 per cent of all of the cost savings in the first year.
Neither store has been particularly affected by the lack of a loyalty scheme, with both experiencing above average growth. However, if these stores were to expand their current efforts to engage customers with well-structured loyalty schemes, they would benefit from detailed data on individual customers that could help them create further sales growth by helping them find ways to further improve levels of service and to solidify their customers’ ties to their brands. This could be particularly important when the UK economy is more robust and shoppers are reassessing their shopping habits.