Tuesday, 26 January 2016

Christmas Food Buying - Consumers Win but Supermarket Performance Patchy


Major supermarkets and research companies have now reported Christmas trading results.

We have learned that food deflation continues, and that, according to research agency Kantar World panel, groceries overall were 1.8% cheaper than in 2014, with the cost of Christmas dinner dropping by 2.2%. Nielsen, another research company reported that sales of meat fish and poultry were down by 3.8%.

Nielsen also reported that in the 4 weeks before Christmas, the proportion of sales bought on promotion dropped to 31%, the lowest for over 5 years.

Online grocery shopping grew over Christmas but not by much. Tesco reported sales growth of 5%, and Sainsbury !0%. Once again the numbers suggest that some forecasts of a doubling of online grocery sales by 2020 seem optimistic.

Seeing the wood for the trees when it comes to how well supermarkets did over Christmas can be tricky, and headlines can be misleading.

The main cause of confusion is the difference between total sales and “like for like” sales which strip out the impact of new store openings and closings, with the picture being further muddied by the different time periods each company chose to report on.

Kantar World panel for example quotes data for the 12 weeks to 3rd January, and tells us that “Waitrose, the Coop and Sainsbury were the Christmas winners”. Yet, according to Waitrose’s own results,  like for like sales over Christmas were down 1.4%. Sainsbury did not disclose its Christmas trading, but stated that quarterly like for like sales were down 0.4%

By contrast, Morrisons like for like sales over Christmas were up by 0.2% which sounds miniscule but was celebrated for being the only sign of growth in the past 4 years. And Tesco’s like for like grew by 1.3% in the 9 weeks to January 9th. Both recorded declines for the quarter due to store closings.

Aldi and Lidl grew by 13% and 18% respectively in the quarter, but according to some reports,  Aldi’s like for like sales were only up around 1% in the run up to Christmas. If correct this seems to confirm that discounter growth will come from opening new stores rather than increasing business through the shops that they already have.

ASDA has not reported results but its recent promise to spend another £500million on reducing prices would seem to indicate that they are losing the competitive battle.

Consumers were the winners at Christmas, but they were restrained in their purchasing, and unlikely to loosen their grip on the purse strings any time soon. Supermarkets and those who supply them faced tough trading conditions, and the onward march of the discounters as they open new stores combined with a desperate search for market share by traditional supermarket  operators mean no let up in competitive pressure.  The one bright spot is that less product was sold on promotion, but any savings will probably need to be ploughed back into every day price reductions.



Tuesday, 22 December 2015

Aldi and Lidl Growth Potential - Three Key Numbers

Institute of Grocery Distribution research about how shoppers plan to buy their Christmas food reveals three telling figures about the potential for Aldi and Lidl.

Of those shoppers intending to visit a discounter -
-          62% will do so to save money
-          40% will go because of the quality of the food
-          17% will go because of fancy foods like lobster tails

The numbers confirm what we already know, namely that low prices are the overriding reason for discount shopping. But what may be surprising is that low prices are so much more important than quality.

Equally telling is the finding that, even at Christmas, only 17% will visit a discounter for speciality foods. The lobster tails and fine wines may be attracting the media hype, but at heart they are a publicity gathering fringe activity, unlikely to be generating big volumes. It is the low prices that matter to most discount shoppers, and the presence or absence of more exotic foods will not matter a jot to them.

The current gap between price and quality puts a ceiling on discounters’ growth potential, but finding the right solutions will not be easy.

The key is to understand what consumers mean when they talk about quality, but not all consumers will view quality in the same way.

Many regular Aldi and Lidl shoppers are delighted with the quality of the foods they buy there, not because they are prepared to compromise, rather they have tried the various products, and know the ones that they like. These precious core customers must not be alienated.

It is likely that the gap between price and quality is greatest among less frequent shoppers. But quality takes many forms. It could be lack of choice that makes shoppers down rate product quality. It could be simply that the discounter version does not taste as good as a branded equivalent. On fresh foods it could be lack of consistency -some days the products are top notch in terms of freshness, appearance, texture and flavour, but some days they are not.   Aldi and Lidl seem to have taken the view that the answer is to add a premium range akin to Tesco’s Finest or Asda’s Extra Special, and throw in the exotic range of food and wines. They will need to do more to bring the number of shoppers buying because of quality closer to the number buying on price, and they must not lose their price position in the process.

Meanwhile, their competitors have their own tightrope to walk, and theirs is the degree to which they can reduce prices, yet keep their shareholders on side. 

Recent performance statistics issued by Kantar Worldpanel indicate that quality issues are not yet hampering the discounters who continue to forge ahead, helped by a number of new stores, and the continued lack of radical pricing action from any of the traditional supermarkets There have been murmurings that the tide may be turning in favour of the mainstream supermarkets, but if so, it is turning very slowly.



Monday, 30 November 2015

Aldi and Lidl – How Big Can They Get?


This is a question being addressed with some trepidation in the boardrooms of traditional supermarkets, their anxiety heightened by the news that  Aldi and Lidl combined have now reached a 10% share of the Uk grocery market.  What is particularly scary is that it took 9 years for Aldi and Lidl to get from 2.5% share to 5%, but only three to double again to the current 10%.
 At the moment they seem unstoppable.

For starters they are building more stores at a time when all other supermarkets are contracting. Aldi and Lidl between them have plans to open 171 new outlets, compared with 29 for the Big 4, and Lidl has stated that it wants to more than double its number of stores, from 629 now to 1500. Aldi is aiming for 1000.

And , a factor that is not often commented on is that both companies are privately owned and so, unlike the Big 4, (Tesco, Sainsbury, Asda and Morrisons) are not constrained by shareholder demands for ever higher profits. The discounters can invest as much as they want, be it in ever lower prices, or store refurbishments, or colossal marketing campaigns, without wondering how the City will react.

Their aggressive marketing seems to be working. According to research company Kantar Worldpanel, Aldi and Lidl have added 1 million more shoppers in the last year, and they have gone more up market, with the result that 31% of their shoppers are now in the wealthier AB social group.

They have taken the upcoming Christmas season very seriously with blanket advertising campaigns, and glossy brochures given away free in Saturday and Sunday papers. A flip through the Aldi brochure reminds readers that they can buy Canadian lobster, British free range goose,  British RSPCA assured Bronze free range turkey, British leg of lamb, and British Caramel and Bourbon ham joint.

Lidl reminds us that it won “Grocer of the Year”, then points out its Marine Stewardship Council certified lobster, RSPCA assured pork, British Bronze turkeys, organic and free range eggs.
How clever to acknowledge major consumer trends in this way – British, welfare friendly, and a bit special.

Both companies pride themselves on their wine and spirits expertise, and compete well with the big 4. Aldi in particular has recognised a competitive opportunity by setting up an online wines and spirits arm, which, some suggest will compete with thatt offered by Waitrose.

So far so rosy. What might stop the march of the discounters?

Four factors could hinder growth

First, Aldi and Lidl might lose sight of what made them great in the first place, namely rock bottom prices . This is what happened to Morrisons who, in an effort to broaden appeal to more affluent shoppers, took their eye off their core customers who could no longer find the good value to which they were accustomed, and were turned off by gimmicks such as misted vegetables and overly fancy foods. There are already signs that this could be happening to Lidl who are refurbishing stores and changing their range of goods to more closely resemble premium outlets. 

Secondly, the big 4 might take decisive action on becoming price competitive, as opposed to tinkering around the edges, which is the case at the moment. Asda for example say that they have reduced the price gap between themselves and the discounters to 10%, and are aiming for a 5% gap. They say that 4 years ago the gap was 20%. Of course this assumes that the discounters would not reduce prices still further, leading to a zero sum game.

Thirdly, discounters might lose out because they do not offer online shopping, apart from the Aldi alcohol venture. Online growth is predicted to continue, as retailers make their websites easier to use, particularly on smartphones and tablets, and more convenient with initiatives like click and collect.

Fourthly, many shoppers feel that they cannot  get everything they want from the limited range offered by discounters which means having to shop twice. There may be some who find this too inconvenient to bother with the discounters.  

Where might it end? Growth rates are slowing from the heady levels of a year ago, but still run at around 16%. The general consensus among industry watchers is that Aldi and Lidl will achieve a market share of around 15%, similar to that in Ireland, due mostly to store openings. Whether they get much beyond that is debatable.  In Germany, discounters have a 37% share, but the trade structure is different to the UK with fewer traditional supermarkets, but Source: BPEX).
even here there are signs that growth is levelling off.  In France, which has a grocery trade structure similar to the UK, the discounters got to around 14% market share, but traditional supermarkets fought back and share in 2014 fell to around 12%. (

One thing is not in doubt though – the discount grocers are now a significant part of the British grocery scene, and will continue to be so as long as they stick to what they are best at – low, low prices.






Sunday, 15 November 2015

Amazon Pantry Home Delivery – How Much of a Threat to Traditional Grocers’ Online Shopping?

The short answer is that Amazon will pose very little threat.

For starters, use of the Amazon service depends on being signed up for Amazon Prime, at a current cost of £79 a year, although there is a special offer of £59 for three days this week. Amazon won’t reveal how many Prime users it has in the UK, saying only that it is “millions”, but one would judge that it won’t be as many millions as are able to access online shopping without subscription handcuffs. Immediately the market opportunity for Amazon has shrunk.

Then there is the weird charging system for delivery. This goes by a price per box of £2.99p, with the ordering system telling you when your groceries are so bulky that they need to fit into another box, which costs 99p. Far less transparent than traditional online shopping where there is usually a set price up to a certain order value, and free thereafter.

And the  Amazon service is limited to dry goods only. It does not offer fresh produce such as meat, fish, vegetables or fruit. So the shopper either has to leg it to the supermarket, or has to log in to a traditional grocer to complete their weekly order, wait in for two deliveries, and probably pay a charge because this second order does not meet the minimum criteria for free delivery.

So what are the benefits of Amazon’s service?

Prices are cheaper in some instances. 100g Nestle instant coffee costs £3.00p from Amazon versus £3.30p in Tesco. However, Kelloggs Cornflakes 750g are the same price. Amazon is not offering branded goods at Aldi or Lidl prices which might have been an attractive strategy.

Shopping online is supposed to be easy and convenient. With membership a prerequisite, a complicated delivery charge, and only offering half of the groceries that are needed in the home, Amazon is anything but convenient. It is not cheap either.




Tuesday, 22 September 2015

Mixed Fortunes in Online – Waitrose down, Ocado static and Morrisons struggle with profit

The online conundrum continues. No one seems to have worked out how to find the holy grail of growth in both sales and profits.

Waitrose, purveyors of food to the well heeled, surprised market watchers last week with the news that their total like for like sales dropped by 1.3% in the last 6 months, the first decline in over 6 years. Even more surprising was the news that online sales plummeted by 13% due it seems to pulling out of promotional activity.

Ocado, equally upmarket, and an online only business, announced by contrast that its sales had grown by 15.3% in the last three months, roughly the same rate as in previous quarters.  Amount spent per order continues to drop.

Morrisons, who were late into online and partnered with Ocado to get going, did not declare sales, but CEO David Potts hinted at profitability problems, saying about the tie up with Ocado “ Its very important that it does become profitable growth. At the moment it is best expressed as an internet investment.”

Running an online operation appears to be a drain on both retailer and manufacturer profitability.

The Institute of Grocery Distribution just a week before the above results were announced published an article entitled “Five killerquestions to ask when moving online”. The third question, “can you invest for growth?”, resulted from  IGD’s finding that many manufacturers, even larger ones, are still mastering the basics of online retailing, and need to spend more money on developing their online offer, particularly in understanding shopper behaviour.

Operating in online grocery shopping does seem to come at a heavy financial cost.




Friday, 21 August 2015

ASDA - A Strategic Mess




ASDA have reported a 4.7% drop in like for like sales in the most recent quarter, and have slipped from second to third place in the supermarket pecking order, behind Tesco and Sainsbury.

A once sure footed and far sighted competitor with a crystal clear strategy now finds itself floundering in a strategic mess.

Here’s why.

ASDA identified the danger posed by discounters as long ago as 2013, and immediately announced that it would invest £1billion in reducing prices. At the same time it decided not to run promotions but to stick with an “everyday low price “(EDLP)strategy, which is what the discounters do.

The rest of the supermarket players eventually woke up to the discounter threat and have responded by a combination of selective price reductions, regular heavy promotions such as buy one get one free, and a promise to match ASDA’s prices on branded goods.

So ASDA is stuck in the middle. It was never as cheap as the discounters and is unlikely to ever be, so its EDLP approach cuts little ice with the dedicated discount shopper. And it offers little benefit over the other mainstream players who have managed to reassure their customers that they cannot buy more cheaply elsewhere, and in addition offered a raft of extremely good deals. ASDA does have its "Price Guarantee" of being 10% cheaper than its major competitors, but this only comes in the form of a coupon after waiting three hours, going on line, and entering the bar code on the receipt. Too much of a hassle for most. 

As a result shoppers cannot see the point of going to ASDA, and have drifted away in droves.

Andy Clarke, ASDA Chief Executive Officer, reckons that sales have now stabilised, and the only way is up. He has mentioned the need to improve ASDA’s online shopping service, and to address the quality of its food, however, both would only bring ASDAin line with what competitors are offering. There is mention of further cuts to get closer to discount prices, and of moving into petrol forecourts to capture the convenience shopper.
These are necessary moves but do not sound like a game changer. Without anwers to the fundamental issue of why shop at ASDA as opposed to other supermarkets, the sales decline is likely to continue.



Friday, 7 August 2015

Why Lamb Eating Quality Must Improve

It is a bad time to be a sheep farmer. The price for each lamb sold is nearly 20% lower than this time last year. Few businesses in any sector can stand such a severe drop in their income.

The reasons for the price fall are well known. On the demand side, a strong £ versus the euro means fewer exports to continental Europe, the Chinese and Russian markets are weakening, and China is reducing tanning capacity so wants fewer hides.  Most worryingly of all UK domestic consumption continues its downward trend.  And at this time of weak demand, supply is rocketing as New Zealand extends its season and the highest volume of home produced lambs since 2008 are forecast to hit the market this year.

Of all the factors contributing to the price drop, the only one within the industry’s control is domestic consumption. There have been recent calls for retailers to pass the lower price they are paying on to their customers, thereby stimulating sales, and calls for some retailers, who should be thoroughly ashamed of themselves, to stop stocking New Zealand lamb at this time when UK lamb is at its best and the NZ version out of season.

Both would help, but they are merely a short term sticking plaster over the long term gaping wound of plummeting domestic consumption. The National Sheep Association in its “Vision for Sheep Farming” says that consumption has decreased by two thirds since 1990, from 7.5 kg per person per year to 1.9kg today.

The problem is this - consumers buying lamb are too often faced with a poor quality product, yet are expected to pay a premium price for it. And no one in the industry has grasped the quality nettle.

So what is “poor quality”?



The picture above, which is typical of what is sold in all of the supermarkets, illustrates the main problem which is fattiness. According to EBLEX 57% of consumers say that lamb tends to be fatty, and I would bet that the figure is higher among younger people.  The problem is compounded by retailers selling product where too much fat has been left on.  Indeed, Tesco has the gall to quote fat levels “when the product is trimmed of fat”. Often too, the bit of the product visible in the pack looks lean but turn it over at home and the underside is more fat than lean.

So put yourself in the position of the consumer who has shelled out for the most expensively priced meat on the supermarket shelf, and yet has to throw away as much as half of the product they bought. No wonder that 45% of people say that lamb is too expensive.

Lamb eating quality is also variable.  It is well known that the older the lamb, the tougher the meat. Ram lambs left entire develop odd flavours after about 30 weeks of age. Lambs fed on concentrates tend to become fattier, and their fat tends to be yellower which some consumers do not like.

So lamb is fatty, expensive and variable in quality. No wonder that the domestic market is declining at such a rapid rate.

The depressing thing is that all of this is well known, and has been for at least 20 years. The old MLC did a study in 1994 identifying the same issues.

Where will it end? It is not over dramatic to suggest that lamb will become a sideline product in UK supermarkets, only picked up by consumers when it is sold at a knock down price.  Already the amount of shelf space given to it is shrinking every season. It does not receive the same innovation push as other meats. Out of sight it will soon become out of mind to the average consumer.

With a small domestic market the industry infrastructure behind it will crack. Farmers will cease farming. There will be less abattoirs because volumes are too low for viability. Auction marts and hauliers will suffer.

The landscape will change too as sheep cease to graze the hills and moorlands.

Yes, there may well be an opportunity for niche lamb production, but the large scale lamb industry as we know it today will be no more.

Yet no one in the UK has shown the necessary leadership to galvanise the industry and get the problems solved.