Loyalty to supermarkets is dead
The days of a big weekly supermarket shop are numbered – bargain prices at Lidl and Aldi have taught people to shop around
7:00AM BST 26 Jul 2014
This is not a good time to be a big supermarket. Many may struggle to shed a tear for Tesco, Sainsbury’s, Morrisons and Asda. But after a generation of dominance, of being blamed for many of society’s ills – the demise of the high street, binge drinking and obesity – the Big Four are suddenly finding life pretty tough.
This week, Phil Clarke, Tesco’s beleaguered chief executive was shown the door after the company announced another drop in sales. Morrison has warned its profits are likely to halve this year. Sainsbury’s, after doing well, has started to see its sales drop. Asda, while probably faring the best, has struggled to increase revenue.
This reversal in fortunes has gone hand in hand with the rise of Aldi and Lidl, the two German discount chains, which are remorseless in their pursuit of middle-class customers. Lidl has opened branches in the wealthy commuter towns of Sevenoaks and Dorking in recent months, while this week Aldi launched a range of cut-price riding kit, with ladies’ jodhpurs for £12.99.
David McCarthy, a retail analyst at HSBC, says: “Right now we are going through the biggest structural change that this industry has seen in more than a generation.”
I investigated this phenomenon for a Channel 4 Dispatches documentary, to be aired next week, examining the rise of the discount chains and the troubles hitting the Big Four. Many of the experts I spoke to agree that this is not just a business issue affecting the shareholders of these companies. What we are witnessing is a once-in-a lifetime shift in consumer behaviour: loyalty is dead.
The desire to shop around to hunt for a bargain came about because of the recession. But even though the economy is improving, many shoppers have kept the habit. “Shoppers want to shop to a budget, spread out over the week, and in simpler formats,” says Stevens.
This means the days of huge hypermarkets may be over. Dalton Philips, the chief executive of Morrisons, has called supermarkets building up large out-of-town plots of land as a “property albatross around [our] necks”.
Dispatches research found that 97 out of 394 supermarket sites that had planning permission, have now been put on hold or scrapped. Only last week Tesco announced plans that it would build 4,000 homes on land previously earmarked for supermarkets.
Shoppers increasingly want to do only the occasional big shop and “top up” at convenience stores, which explains why the number of Sainsbury’s Locals have nearly doubled in the past three years to 611 outlets.
This trend has also played into the hands of the German discounters, which tend to be less out-of-town, as well as cheap. Aldi, once famed for cut-price fishing tackle, cheap running socks and strange own-branded food and drink (Ballycastle Irish cream liqueur, anyone?), is now a serious force in the UK. So, too, its rival Lidl.
Between them they control 8.3 per cent of the grocery market. That may not sound a lot, but is far more than Waitrose (on 5 per cent) and is close to the market share of Morrison on 10.9 per cent.
In simple terms, Aldi and Lidl are cheaper than their rivals, especially when it comes to basic tinned food as well as fruit and veg. Take a 70g bag of rocket salad, for instance. At the big four – Tesco, Asda, Sainsbury’s and Morrisons – it is £1 or 99p. But at Aldi it is 65p and, this week at Lidl, 50p.
These consistently low prices have caused the traditional supermarkets to sit up, take notice and cut prices, and cut them hard. In the past, supermarket price wars have been a mostly smoke-and-mirror affair with prices slashed in one area, only to go up in another. The proof was in the figures. Namely, supermarket profit margins never appeared to be dented and food inflation continued to creep upwards. For all the big red stickers, consumers were rarely winners.
But things appear to have changed. The Office for National Statistics says that food and drink prices were lower in May and June than a year ago.
Consumers may not feel substantially better off, but food prices are rising at a far slower rate than wages. Edward Garner, retail analyst at Kantar, says: “I think there is some credence to it being a genuine price war. There are some very good headline offers around: £1 for a four-pinter of milk, and quite a lot of stores offering £1 for an 800g loaf of Warburtons. You now have a critical mass with the discounters, and they are ruthlessly low cost,” he says.
The internet has also helped shoppers to keep a close eye on prices. Even if they don’t shop online (and few people do when it comes to groceries), they can research which chains have the cheapest strawberries or wine on any given day.
This price war is complex, however. It has not caused a exodus from the Big Four to the discounters. Rather, it has led to shoppers becoming far more fickle – still shopping in the traditional supermarkets for many things, but popping into the discounters for a few bargains. According to Kantar, in 2010 loyal Tesco shoppers – defined as spending more than half of their grocery budget at Tesco – made up 32 per cent of its customer base. This has fallen to 29.7 per cent this year.
A similar trend has been seen at Asda and Morrisons, though Sainsbury’s has managed to keep hold of its fans. In 2010 a mere 1.5 per cent of Aldi’s shoppers spent over half their grocery budget at Aldi.
Back then, you had to be a hard-core bargain hunter to venture through its doors to pick up more than a few items. Visually, the stores were unappealing and offered a relatively small range. But the chain is attracting far more loyal shoppers now, thanks to opening more stores and rotating its selection of bargains, be they Singer sewing machines at Lidl or jodhpurs at Aldi.
Now “loyal shoppers’’ make up 4.5 per cent of Aldi’s customer base. This is still a small number but marks a big increase. It also shows how Lidl (which has just 2.7 per cent loyal customers) and Aldi rely heavily on fickle shoppers – hunting for bargains. The other big change is that the discounters no longer sell just tat. Indeed, both Aldi and Lidl keep on winning awards for their food and drink, with Lidl’s £4.99 lobsters and Aldi’s claret being notable hits. Garner says: “The discounters have removed the stigma attached to them. They are not selling cheap stuff, they are selling stuff cheaply. That’s the transition that has happened.”
This explains why the customer base of Aldi and Lidl is increasingly middle class – 24 per cent of their shoppers come from the AB socio‑economic group – which is almost in line with Tesco and is higher than Morrisons and Asda.
“It is now quite common to turn up to someone’s house for dinner and not bat an eyelid when the host opens a bottle of wine from Aldi,” says Garner. He is right. It is also likely that guests will be served with products from a range of supermarkets.
Our fickleness may hit the profits of the Big Four. But as McCarthy says: “Consumers should be the long-term winners from this situation. Competition is always to the benefit of consumers.”
'Dispatches: Supermarket Wars’, presented by Harry Wallop, is on Channel 4 at 8pm on July 28
On offer at Lidl and Aldi
Lidl: British 21-day aged beef rump steak, 400g, £3.99
Sainsbury’s sells a Taste the Difference 21-day aged beef rump for the equivalent of £8
Lidl: Cucumber, 16p
At Tesco, Asda and Morrisons cucumbers are 49p
Lidl: Singer Tradition sewing machine with 32-built-in stitches, £79.99
At Argos, a Singer Tradition sewing machine with 20 stitches is £119
Aldi: British strawberries, 400g, £1.39
Asda, £1.50; Sainsbury’s, Tesco, Morrisons, £2.
Aldi: Specially Selected prosciutto di Parma, 90g, £1.99
Tesco: Finest prosciutto di Parma, 88g, £2.65
Aldi: Boys’ school trousers, £1.50
At Asda, boys’ school trousers, £3
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