Wednesday, 11 February 2015

Tesco Growing, Discounters Slowing, But No Sign of a Return to Traditional Shopper Behaviour

Its a funny old world when grocery market watchers are full of smiles when Tesco manages to grow by 0.3% in the 12 weeks to 1st February 2015, but signal gloom because discounters Aldi and Lidl “only” grew by 21% and 14% over the same period. (Kantar Worldpanel)

It depends where the start point is of course and a move into positive growth for Tesco after months of dropping sales probably does seem like a turning point. Equally, when a company has been growing by over 30% year on year as is the case with Aldi, then a slow down to 21% may seem like a turning point too.

What is clear though is that there is no sign of a rush back to traditional mainstream shopping patterns. Sainsbury's sales are declining by 1% and Asda by 1.7%, and the evidence suggests that the march of the discount grocers is likely to continue, albeit at slightly lower growth rates.

Take for example Aldi’s stated plans. They have committed to opening 70 more stores in 2015, and one of these will be its biggest ever, at 19,0000 sq feet compared with an average of 16,000 sq ft just now. More stores mean more shoppers, and bigger stores with their capacity to offer a wider range may mean a bigger spend per shopper.

There is no doubt that increasing numbers of us go to discounters. The IGD says that 55% of shoppers visited a discounter in December 2014 versus 36% in December 2010. This could be due to well publicised offers on alcohol, but there are also signs that increasing numbers are using discounters to do their main shop – 15% in December 2014 versus 3% in December 2010. And shoppers seem to like what they find when they get there - 52% of those visiting a discount shop spend over half their food and grocery shopping budget there.

Whilst it is the retailers who tend to get the headlines, the changing shape of the grocery market continues to cause headaches for suppliers. There are the well documented demands for reduced prices and extended payment terms from the big 4 mainstream grocers, and in a total grocery market which is growing by just over 1% the demands are rarely compensated for by growth. The problems then deepen, as the discount sector which is showing growth, tends not to stock brands, and buys most of its product lines from abroad.

Wednesday, 28 January 2015

Online Grocery Shopping - Growth Rates a Bit Disappointing?

Grocery market watchers still predict a doubling of growth in online grocery shopping by 2019, and are quick to criticise companies who seem not to be embracing the channel with gusto.

The enthusiasm is perhaps understandable. After all, many product sectors like books and music are nearly all bought on line, clothing is increasingly so, as are household goods.

Certainly, online is growing fast when compared with sales through stores. Tesco’s online sales over Christmas grew by 12.9%, Sainsbury  by 6%, Ocado by 14.8% and Waitrose by 26%.
However, the ONS tells us that total online sales of grocery products were up just 6% in December, and a look at trends through major grocers tells us that the rate of increase is slowing markedly. This despite heavy promotions,  the advent of click and collect and increased ownership of tablet computers and smartphones which are supposed to make the whole online shopping experience cheaper, easier, and therefore more attractive.

Retailers are ploughing enormous amounts of money into building their online presence.  Tesco is currently charging just £1 for certain delivery times, and allowing £15 off  the first shop. Ocado is offering £20 off the first shop and free delivery on a Wednesday. Sainsbury offers £25 off the first shop and £10 off plus free delivery for subsequent shops.  Asda charges just £2 per month for delivery. The low delivery charges are especially profit draining given the cost of getting an online order picked, put on to a van which has to be taxed, insured serviced and fuelled, and dropped at the customer’s front door.

Click and collect and the chance of shopping on high tech gadgets do not seem to be catching on in a big way. A look at IGD data examining shopping behaviour shows that as of October 2014 just 26% of online shoppers were using click and collect. Data to April 2014 shows 18% shop on a smartphone and  23% on a tablet computer.

The same data suggests that online is still used infrequently. 21% of online shoppers  use the channel every week, and a further 11% use it every 9 or 10 days.

It is interesting to compare the growth rates of online - heavily promoted, technology friendly, highly service orientated with click and collect or drop at the door – with those of Lidl and Aldi who offer none of that, and yet grew by 15% and 23% respectively in the twelve weeks to beginning of January.

Tuesday, 13 January 2015

Consumers Unwilling to Splash Out on Groceries– Even at Christmas

Perhaps the most surprising feature of Xmas trading results from the major supermarkets is that even at this traditional “throw caution to the winds and spend” time of year, shoppers were not prepared to loosen their purse strings when it came to food and groceries.

We do not know yet what total supermarket sales were like over Xmas, but given Tesco’s 0.3% decline in like for like sales, Sainsbury’s 1.7% drop,  a not unexpected plummet of 3.1% from Morrisons, and a disappointingly flat performance from Marks and Spencer who are supposed to be immune from penny pinching habits, the picture is unlikely to be rosy. Waitrose fared a little better, recording a 2.8% increase, and discounters Aldi and Lidl are both claiming their “best ever” Xmas, but as the combined market share of these three companies is just over 13% their better numbers will not compensate.

Hence the racheting up of price cutting announcements from the “Big 4”.  In a time of low inflation with shoppers just not prepared to spend on food, the only way for grocers to grow is by stealing market share. Tesco is to drop the price of 350 core lines, and claims that over Xmas some of its vegetables were cheaper than Aldi.  Asda is to spend £300m on cutting prices in the first three months of this year, and Sainsbury £150m.

Where will it end? Many in the industry are saying that prices generally will need to be rebased  regardless of the impact on profit margins. Morrisons chief executive, the second CEO, after Philip Clarke of Tesco to lose his job due to poor performance,  has declared that the only way forward is to “neutralise on price”, and then find ways to differentiate from the competition.

The big grocers will be able to manage their way through price wars more or less unscathed through a combination of slashing costs and offloading real estate. They can cherry pick which products to price reduce, and the scale and duration of any cuts. They can, and will, raise prices on many goods to offset reductions on others.

The unknown and little discussed issue is the knock on effect to others in the supply chain, many of whom are small businesses, already operating on wafer thin margins.  The drop in commodity prices will help. And there may be a boost to demand. Consumption of beef and lamb for example has dropped due to high retail prices. If, on the other hand, goods are already being produced at below cost, as in the case of some dairy farmers, then a boost to consumption does not help at all.

What is clear is that a low price, low growth , low profit world is here to stay for those connected with the grocery supply chain.

Friday, 12 December 2014

Thriftiness Now a Way of Life for Today's Food Shopper

Anyone who thought that shoppers would give up buying habits acquired during the recession may want to read the Waitrose Food and DrinkReport for 2014. Even those who visit this most upmarket of food retailers keep a close watch on what they spend. As Mark Price, Waitrose CEO says “Britain has become alot thriftier ...and that trend is here to stay”.

Budget consciousness, and its sister waste reduction are now ingrained across all ages and incomes. It means fewer trips to the supermarket, more buying only what is needed for that night’s evening meal, a constant eye on price, and more spending in discount stores like Aldi and Lidl.

Which  is not to say that consumers shun premium products buying only the cheapest, rather that in making a buying decision they want to be sure that they are not over paying, that the price charged is a fair reflection of quality, and that they could not buy similar products somewhere else more cheaply.
So we see that Sainsbury’s Taste the Difference premium range growing sales by 4% in the last 6 months when total sales were down 0.3% , and discounters cottoning on to the interest in premium products, offering expensive wines, lobster, free range Bronze turkeys, and luxury versions of standard favourites like puddings and mince pies. Waitrose’s own growth illustrates shopper willingness to buy the exotic, even if only occasionally, and the company says that 2015 will see further “premiumisation” with more luxury versions of standard foods like “uber special cupcakes”, new fancy doughnuts and ready to drink cocktails.

Amidst all the hype it is worth remembering that the vast majority of food spend goes on the basics - “sustenance and survival” in Waitrose’s words, and it is day to day expenditure that will receive greatest shopper scrutiny. The “Big 4” supermarkets have not fully recognised this, but are slowly seeing that budget consciousness is now a way of life for shoppers, and is here to stay. Asda has stated their commitment to closing the price gap with the discounters, and in a letter which will spoil Christmas for many, Tesco’s new CEO has indicated to his suppliers that as they are benefitting from falling commodity prices they may have to reduce their prices in January, as the company tries to compete against the discounters.

It is difficult to see anything but continued pressure on suppliers and ultimately primary producers, especially where products are heavily commodity reliant and have limited added value.

Monday, 17 November 2014

“A Market in Unprecedented Distress” – Says ASDA About the Grocery Trade

The words come from Andy Clarke, ASDA’s head man, as he reported like for like sales down 1.6% in the 13 weeks to end September, and thereby joined the other three major grocers in a club characterised by sliding sales and plummeting profits.

There is an air of helplessness coming from all four companies with much talk of shoppers changing the way they shop but little sign of game changing action. Yet the changes over which the grocers are wringing their hands have been evident for years. Who in the industry could have missed the rise of Aldi and Lidl, the trend towards convenience shopping and its knock on effect of buying fewer items, and the realisation by shoppers that with a little effort they can trim grocery bills. Arguably too, a return to more normal levels of food inflation was inevitable, and that relying on rising prices to keep sales and profits up was a risky strategy.

Grocers may have secretly thought that a better economy would encourage shoppers to return to pre recession buying behaviour, when little thought was given by many to the size of their grocery bill.
This has not happened. Whilst premium food sellers like Marks and Spencer and Waitrose may be doing better than most, and shoppers are still prepared to buy premium products like Sainsbury’s Taste the Difference which grew by 4% in the last 6 months, the overwhelming evidence is that shoppers are still very careful with their grocery spending.

The Institute of Grocery Distribution has found that the top three priorities of shoppers today are –
To save money on food and groceries (64%)
To reduce food waste (47%)
To stick to a budget (47%)

All the signs are that to remain competitive and hold on to their customers,  supermarkets will need to rebase prices to a significantly lower level than currently.  Asda has recognised this. As the CEO said “We have more to do on the discounters, but we continue to close the gap on price”. Sainsbury by contrast has not, offering only a £150m price reduction. Morrisons know that pricing is key, and suggested that they will reduce by £1billion. Tesco has yet to pronounce.

Tough times for retailers - very tough times for all players in the food chain from producers upwards.

Monday, 13 October 2014

Supermarket Price Promises – Mostly Smoke and Mirrors

Shoppers’ continued search for value, and the onslaught of discount grocers has led to the Big 4 supermarkets are tying themselves in knots trying to assure their shoppers that they offer the same prices as their competitors.

All claim that the shopper can be confident that their purchases will be no more expensive than if they had bought elsewhere, but close examination suggests that the initiatives being run by the supermarkets are mostly smoke and mirrors designed to give the illusion of value but in reality offering little of substance.

No store hands back hard cash if they are found to be more expensive. Instead Tesco, Sainsbury and Asda hand over vouchers and Morrisons has a complicated scheme where a card has to be obtained, points are added to the card when purchase at another store would have been cheaper, and the points are eventually traded in for a voucher. Voucher schemes benefit the supermarket because many will have been lost or forgotten about before they expire.
There are other wheezes designed to limit supermarket exposure. Sainsbury only compares with Asda, dropping the comparison with Tesco in a recent change designed to save money. Asda makes the shopper do the comparison work. It guarantees to be 10% cheaper than the other three major supermarkets but the shopper has to go online, enter till receipt details to find if their shop could have been cheaper elsewhere, and then claim their voucher.
There are a myriad of exclusions and exceptions to the various price promises. To be fair, Tesco’s Price Match covers all shops big and small, and fresh and own label products as well as branded. Morrisons compares with Lidl and Aldi as well as the majors across branded and own label. But Sainsbury does not offer its Brand Match in convenience stores, neither does Morrisons, and Sainsbury only compares branded prices.  All the supermarkets stipulate a minimum spend. No store gives out a voucher worth more than £10. Many everyday items are excluded such as baby formula.
There will be shoppers who have the time to go into the detail and work out how to make these pricing initiatives work in their favour. Many though will quickly conclude that the only thing that counts when shopping is the size of the bill week in and week out.
Which takes us back to Lidl and Aldi.
Despite the flurry of reduced prices and price promises among the “Big 4” both discount stores continue to flourish. Add to this Aldi’s recent commitment to keep the price differential between themselves and conventional supermarkets at a minimum of 15%, and it is difficult to see how the majors can hold their position without concrete and continued price reductions across their whole range of goods. So far, they are only playing at delivering competitive prices.

Monday, 22 September 2014

Looking at Online Grocery Shopping From the Supplier' Viewpoint

Life is not easy for suppliers selling their products through a supermarket’s online channel. The tried and tested tactics which work in the physical supermarket are of minimal use.

Online offers no opportunities for eye catching secondary displays designed to capture shopper attention should the brand be missed on shelf. There is no way to sample something new and delicious. Promotions which are visible when the shopper casts his or her eye along a 20 metre shelf are easily missed when confined to a screen measuring 15 inches x 6 or less.  The challenge is particularly acute for impulse products like confectionery, or soft drinks, lines which are probably not on the shopping list but are tempting when spied in store.

Whilst there may be some debate about how big the online channel might become, there is no doubt that it is more buoyant than traditional supermarket shopping, and suppliers are slowly waking up to the fact that this channel needs dedicated resources if they are to get the best out of it. 43% of major multinational suppliers interviewed by the IGD (Institute ofGrocery Distribution) have staff assigned to the online channel at least as part of their role. However just 24% have dedicated people to the channel on a full time basis, and only 10% have tailored the way they sell their products on line.

Without imagination and focus many suppliers resort to money off mechanics to promote their products, which can be expensive, and is at best a short term solution.

The key of course is to understand how shoppers approach online grocery buying and then work out how best to capture their attention. Research company Evolution has found that online shoppers tend to be very single minded and this not surprising given that the main reason to use online is to save time. Only 4% start their shop by browsing various categories, and just 1% start by looking for meal and recipe suggestions. 19% start with the special offers page (although 53% get round to it at some point). 25% shop by keyword (milk, eggs etc) and tend to work from a shopping list. Suppliers may want to explore opportunities on the “favourites” page. This is the first page visited by 44% of shoppers, and around 56% refer to this page at some stage during their shop.

It is becoming clear that a one size fits all approach is unlikely to work online, and that personalisation will become increasingly important. To get the best out of a marketing activity it must be relevant to the needs of individual shoppers, whether they might be one of the 35% who do their weekly shop online, or more likely, one of the 53% who only use online infrequently to do a big shop. Equally, there is little point in featuring a pet food initiative to a non pet owner, or a beer blitz to someone who only drinks wine and spirits. 

Having good shopper research data helps address the challenge of selling on line where space is limited and competition to get noticed is fierce.  It is also critical when negotiating with retailers who will have the last say about the strength, depth and promotional support demanded to feature a particular supplier’s products.