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.