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Why are supermarkets having an identity crisis?

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BIG THINKING

Why are supermarkets having an identity crisis?

Jerome Hancock
Partner
Hall & Partners The Modellers

LinkedIn Email

Bethan Evans
Strategy Director
Hall & Partners

LinkedIn Email

Ross Denton
Strategist
Hall & Partners

LinkedIn Email

The pressure on supermarkets to reinvent themselves is enormous, as shopping behaviour has moved online and the nature of the competition continues to shift drastically. The focus nowadays is not as much on products as it is on the types of immersive experiences offered and the intelligent utilisation of technology.

With the imminent power of Amazon, which recently launched a scaled-down grocery delivery service, speed, convenience and ease of use are going to become key factors. So traditional supermarkets need to innovate to retain their competitive edge, still keeping the customer at the heart of the shopping experience, whilst competing with ecommerce giants that have personalisation and big data use literally coded into their business models.

Yet underpinning all of these changes is still price. It is why discounters’ continued growth in popularity has enabled them to branch out and offer more premium goods, whilst more mainstream, traditional brands which used to focus on quality above all else are discounting their prices.

And yet in this race for market share, brands are losing a key aspect that audiences look for. Their identity.


What happened with the Sainsbury's-Asda merger?

Out of the UK chains, for instance, Sainsbury’s has led the way in adopting and embracing a highly consumer-centric approach, while Asda’s strategy has focused on driving costs down and passing the price benefit to the customer. Which is why the two brands sought to merge recently. One of the reasons that failed was because the purpose of the merger was not clearly defined. How would consumers benefit, if at all? Would it mean a cross-pollination of ideas resulting in a superior customer experience at an unbeatable value, or was it a reaction to the threat by the budget chains Aldi and Lidl to become a highly cost-focused organisation?


Retaining a competitive edge today is all about understanding customer triggers, using insights and big data


While it might be tempting to go for the latter and slash costs, the former is where the true value lies. Retaining a competitive edge today is all about understanding customer triggers, using insights and big data. Gaining a deeper understanding of customer demands, and mining data across the wave of digital channels, are imperative to delivering a personalised experience. Amazon has spent decades perfecting this, and has a substantial lead on the big retail chains.

Technology vs Discount


Technology vs. Discount

On one side then we have the disruptive nature of technology but on the other lies the even more disruptive retail theme of discounting. The rise in popularity of discounters has forced the hand of the ‘big four’ into adapting their offering and changing how they operate as retailers. In 2011 Aldi and Lidl had 6% market share, now it is almost 15%. A market share of 20% no longer seems impossible. This trend is also being seen in homewares and general merchandising where companies such as B&M and Poundland are diluting spend at the big players.


Driven by uncertainly in politics and the economy, the popularity amongst consumers to shop for better value products is a trend that will not fade away.


One solution to this identity crisis then, in which ‘quality’ retailers seek to discount and discounters seek to add more premium products perhaps lies in combining both of these disruptive trends – price and technology, value for money and personalisation.

Discounters grew at a rapid clip from 2000 to 2015, gaining significant market share. Worldwide, discounters are projected to increase their number of store locations by 4.4% a year through to 2020, compared with just 2.9% for mainstream supermarkets and 1.6% for superstores and hypermarkets. Some regions will see an even faster expansion, including Eastern Europe (more than 30%) and Latin America (approximately 8%).

Instore supermarket shopping experience

The biggest factor in this success, particularly over the past decade, is that these companies have evolved and redefined their approach to offer higher-quality products, a broader assortment, and an improved shopping experience. The discounters are still renowned for their bargains but they are also now known for something else.


The race for the bottom line…

The response from major retailers such as Sainsbury’s and Tesco’s has been to reduce the price gap with discounters, especially for price-sensitive products. Or even launch spin-off brands that stress the extreme low cost of produce. Mainstream grocers will never completely eliminate the price gap with discounters—and they don’t need to. They just need to be competitive in the areas that are most important to customers.

In that race for the bottom line, however, the value proposition has been neglected. Customers do not just want the cheapest products. In fact that may sometimes be less of a priority. Instead, they want high-quality products that meet their needs, a clean store environment, helpful staff, and prices that seem to represent fair value. Different customers define those criteria in different ways, so grocers need to understand their target customers and how they want to shop. Those insights, in turn, have ramifications for store design, product categories, and other forms of customer engagement with the brand.

Once a company understands its target customers, it can revise its product categories to better meet their needs. That revision, in turn, will influence the assortment of products sold, the pricing and promotion strategies, and the overall customer experience.


Once a company understands its target customers, it can revise its product categories to better meet their needs.


Innovation lies at the heart of improving that customer experience. Most smartphone owners, for instance, want to be able to get product information on their phones while they’re at the store, and more than 40% look for deals on products while shopping. A retail chain in South Korea has capitalized on these trends by developing a mobile in-store navigation app that guides customers to on-sale items and sends instant coupons to their phones. Similarly, French grocer Carrefour is testing an app that guides shoppers to their preferred promotional items in stores. (It uses the phone’s camera and is accurate to 1 meter, versus 3 to 5 meters for mobile GPS systems.)

Most discount grocers have a heritage of simplicity and superb execution, whilst legacy companies have real expertise in offering quality products. By pursuing growth opportunities that pull them away from their main areas of expertise and competitive advantage, each genre of supermarket is damaging the solid reputation it has carved out for itself.

Such competition has served consumers well. However, their loyalty is now more fickle than ever. If everyone is offering cheap goods, sitting side-by-side with high quality alternatives in a best-of-everything type scenario, the real winners will be those that seek to understand their customers more holistically and offer something more than things to buy.

They’ll offer an experience that is valued as much as a bargain is.

 

Share this article

 

The pressure on supermarkets to reinvent themselves is enormous, as shopping behaviour has moved online and the nature of the competition continues to shift drastically. The focus nowadays is not as much on products as it is on the types of immersive experiences offered and the intelligent utilisation of technology.

With the imminent power of Amazon, which recently launched a scaled-down grocery delivery service, speed, convenience and ease of use are going to become key factors. So traditional supermarkets need to innovate to retain their competitive edge, still keeping the customer at the heart of the shopping experience, whilst competing with ecommerce giants that have personalisation and big data use literally coded into their business models.

Yet underpinning all of these changes is still price. It is why discounters’ continued growth in popularity has enabled them to branch out and offer more premium goods, whilst more mainstream, traditional brands which used to focus on quality above all else are discounting their prices.

And yet in this race for market share, brands are losing a key aspect that audiences look for. Their identity.


What happened with the Sainsbury's-Asda merger?

Out of the UK chains, for instance, Sainsbury’s has led the way in adopting and embracing a highly consumer-centric approach, while Asda’s strategy has focused on driving costs down and passing the price benefit to the customer. Which is why the two brands sought to merge recently. One of the reasons that failed was because the purpose of the merger was not clearly defined. How would consumers benefit, if at all? Would it mean a cross-pollination of ideas resulting in a superior customer experience at an unbeatable value, or was it a reaction to the threat by the budget chains Aldi and Lidl to become a highly cost-focused organisation?


Retaining a competitive edge today is all about understanding customer triggers, using insights and big data


While it might be tempting to go for the latter and slash costs, the former is where the true value lies. Retaining a competitive edge today is all about understanding customer triggers, using insights and big data. Gaining a deeper understanding of customer demands, and mining data across the wave of digital channels, are imperative to delivering a personalised experience. Amazon has spent decades perfecting this, and has a substantial lead on the big retail chains.

Technology vs Discount


Technology vs. Discount

On one side then we have the disruptive nature of technology but on the other lies the even more disruptive retail theme of discounting. The rise in popularity of discounters has forced the hand of the ‘big four’ into adapting their offering and changing how they operate as retailers. In 2011 Aldi and Lidl had 6% market share, now it is almost 15%. A market share of 20% no longer seems impossible. This trend is also being seen in homewares and general merchandising where companies such as B&M and Poundland are diluting spend at the big players.


Driven by uncertainly in politics and the economy, the popularity amongst consumers to shop for better value products is a trend that will not fade away.


One solution to this identity crisis then, in which ‘quality’ retailers seek to discount and discounters seek to add more premium products perhaps lies in combining both of these disruptive trends – price and technology, value for money and personalisation.

Discounters grew at a rapid clip from 2000 to 2015, gaining significant market share. Worldwide, discounters are projected to increase their number of store locations by 4.4% a year through to 2020, compared with just 2.9% for mainstream supermarkets and 1.6% for superstores and hypermarkets. Some regions will see an even faster expansion, including Eastern Europe (more than 30%) and Latin America (approximately 8%).

Instore supermarket shopping experience

The biggest factor in this success, particularly over the past decade, is that these companies have evolved and redefined their approach to offer higher-quality products, a broader assortment, and an improved shopping experience. The discounters are still renowned for their bargains but they are also now known for something else.


The race for the bottom line…

The response from major retailers such as Sainsbury’s and Tesco’s has been to reduce the price gap with discounters, especially for price-sensitive products. Or even launch spin-off brands that stress the extreme low cost of produce. Mainstream grocers will never completely eliminate the price gap with discounters—and they don’t need to. They just need to be competitive in the areas that are most important to customers.

In that race for the bottom line, however, the value proposition has been neglected. Customers do not just want the cheapest products. In fact that may sometimes be less of a priority. Instead, they want high-quality products that meet their needs, a clean store environment, helpful staff, and prices that seem to represent fair value. Different customers define those criteria in different ways, so grocers need to understand their target customers and how they want to shop. Those insights, in turn, have ramifications for store design, product categories, and other forms of customer engagement with the brand.

Once a company understands its target customers, it can revise its product categories to better meet their needs. That revision, in turn, will influence the assortment of products sold, the pricing and promotion strategies, and the overall customer experience.


Once a company understands its target customers, it can revise its product categories to better meet their needs.


Innovation lies at the heart of improving that customer experience. Most smartphone owners, for instance, want to be able to get product information on their phones while they’re at the store, and more than 40% look for deals on products while shopping. A retail chain in South Korea has capitalized on these trends by developing a mobile in-store navigation app that guides customers to on-sale items and sends instant coupons to their phones. Similarly, French grocer Carrefour is testing an app that guides shoppers to their preferred promotional items in stores. (It uses the phone’s camera and is accurate to 1 meter, versus 3 to 5 meters for mobile GPS systems.)

Most discount grocers have a heritage of simplicity and superb execution, whilst legacy companies have real expertise in offering quality products. By pursuing growth opportunities that pull them away from their main areas of expertise and competitive advantage, each genre of supermarket is damaging the solid reputation it has carved out for itself.

Such competition has served consumers well. However, their loyalty is now more fickle than ever. If everyone is offering cheap goods, sitting side-by-side with high quality alternatives in a best-of-everything type scenario, the real winners will be those that seek to understand their customers more holistically and offer something more than things to buy.

They’ll offer an experience that is valued as much as a bargain is.

 

Share this article

 

Jerome Hancock
Partner
Hall & Partners The Modellers

LinkedIn Email

Bethan Evans
Strategy Director
Hall & Partners

LinkedIn Email

Ross Denton
Strategist
Hall & Partners

LinkedIn Email