Wheels coming off the supermarket trolley

Wheels coming off the supermarket trolley

By Andrea Felsted, Senior Retail CorrespondentAuthor alerts

Steve Jones, transferring succulent Kentish cherries from a wooden crate into punnets at the Whitstable Produce Store, is an unlikely challenger to the might of the global grocery giants. Whitstable, a seaside town in southeast England, has a thriving tourist trade and a bustling high street. Yet rather than use all of his new store as a coffee shop for passers-by, Mr Jones chose to devote a prime spot at the front to local produce, from strawberries and gooseberries to sourdough bread from nearby Herne Bay.

 “The produce is doing very well,” he says, “and also it attracts people in.”

Just seven miles away, in the affluent town of Canterbury, Jessica Steadman, a full-time mum from Whitstable, is loading her car with the groceries she has just bought at Aldi. Driving to the German discounter is worth it for the savings she can make.

“It’s just by a fraction, but it’s that fraction . . . that makes a difference,” she says.

These two radically different segments of the grocery market highlight the mounting pressure on traditional supermarkets. Across the developed world, the dominant form of food retail for the past 50 years is under attack from nimbler rivals on high streets and mainstreets, from discount food retailers and from the inexorable march of online shopping.

According to Andrew Seth, author of The Grocers and Supermarket Wars, a “gradual revolution” is taking place.

Clive Black, analyst at Shore Capital, says that last autumn was the first time he can recall when all of Britain’s big four supermarkets – accounting for three-quarters of the market – lost market share at the same time. “That is totally and utterly uncharted territory,” he says.

Elsewhere, underlying sales from Walmart’s core US stores have been declining for more than a year, while France’s Carrefour and Germany’s Metro are in the midst of turnround plans.

According to Planet Retail, supermarkets over 25,000 sq ft are still the biggest sales channel, accounting for about $1.8tn of sales globally in 2013. But the retail consultancy forecasts that between 2013 and 2018, all other channels will grow faster.

The modern supermarket has its roots in the US before the second world war. But it was in the postwar years that the concept took off, as baby boomer families drove to stores to stock up for the week.

Today, more older people and couples without children have less need to fill up their freezers and larders.

In developed markets, consumers are shopping more locally and more frequently, for both convenience, and to help manage their stretched household budgets.

“People are no different to businesses. They want to preserve cash flow too,” says Dave McCarthy, analyst at HSBC.

In a further effort to save money, consumers are turning to the German discounters or warehouse clubs such as the US’s Costco. Dollar stores and pound shops are adding fresh food to their ranges. Value chain Target in the US and Sir Philip Green’s BHS department stores in the UK have also introduced groceries to encourage shoppers into stores more regularly.

But it is not just competition at the bottom end of the market that is eating away at supermarkets.

On both sides of the Atlantic, more upmarket grocers have generally weathered the downturn better than mid-market rivals. Affluent consumers have proved more resilient in the downturn. Some shoppers have been prepared to trade down for certain products, only to treat themselves in others.

“There are more and more hybrid consumers, who go to the discounters for some basic products – eggs, butter, apples. But for other products, fresh meat, specific spices or exotic vegetables, they are going to either a speciality store, or a bigger supermarket,” says Mirko Warschun, a partner with AT Kearney’s Munich office.

Meanwhile, online grocery is gaining ground. The UK has the most advanced online grocery market, but the US is catching up. Walmart, which sells groceries online in the UK and China, has begun its second US online grocery trial, including drive-through collection points in Denver. Amazon has expanded its AmazonFresh grocery delivery service to Los Angeles. France is the leader when it comes to ordering groceries online and collecting them from a store.

“We have what I call death by a thousand cuts,” says Jim Prevor, the US analyst who runs the Perishable Pundit blog.

Faced with pressure on their core businesses, many developed market grocers are opening more smaller stores.

But with many of the products that attracted shoppers to bigger stores in the first place – such as consumer electronics – migrating online, some analysts argue that more profound changes are needed to core supermarket estates.

“To continue to attract customers, supermarkets need a compelling and differentiated offer. That may be attractive prices, or a shopping experience that innovates and excites. Simply piling products into a trolley is no longer enough,” says Christine Cross, the independent retail consultant.

Tesco and Carrefour have been improving the shopping experience in their big stores to encourage shoppers to stay longer. Tesco’s store at Watford, north of London, has a trendy coffee shop, an artisan baker and even a yoga room. In Australia, where supermarkets are battling the growth of Aldi, Woolworths recently opened a new store in Sydney complete with cheese room and sushi chefs.

At the other end of the spectrum, grocers such as the UK’s Asda, France’s Leclerc and Spain’s Mercadona have concentrated on low prices.

Either way, the solution is likely be painful, involving higher investment to revamp stores, or lower margins, as price cuts take their toll.

And analysts expect the space devoted to big stores to come down.

At a large store in Mansfield, Nottinghamshire, Tesco has already converted some of the space it no longer needs into facilities to fulfil online grocery orders. Bruno Monteyne, analyst at Sanford Bernstein, forecasts that more retailers will follow, gradually converting excess space in big stores into the “backbone” for the online delivery of fresh food.

There are some hopes that with economic recovery, the pressure on supermarket operators will ease. But judging by the shoppers in Kent, this looks unlikely.

Just five miles from Whitstable, Aldi hopes to open a store in Herne Bay.

Tina Campbell, who has driven from Whitstable to Aldi in Canterbury to stock up on flavoured water, fruit squashes and snack bars is looking forward to when it opens.

“I will go regularly,” she says.