Brutal competition batters supermarkets the world over

As discount chains knock spots off Sainsbury's, Tesco, Asda, and Morrisons in the UK, grocers in Europe and further afield are suffering too. Observer writers check out shopping struggles from Berlin to Beijing

• Observer writers
• The Observer, Saturday 4 October 2014
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A self-service checkout in Rheinberg, Germany, where the discounters have won the war now being fought in Britain. Photograph: Alamy

As they scramble to maintain market share, the big four British grocers can take comfort from the fact that at least they are not alone. The global supermarket industry has its share of epic competitive scraps, too. In Europe alone, the discounters that have wrought havoc for Tesco, Morrisons, Asdaand Sainsbury's have an even more powerful grip on the industry. While Aldi and Lidl control around 8% of the UK market, according to figures from market research group Kantar the share controlled by discounters in France is 10% and in Germany – home of Aldi and Lidl – it is 37%. In the UK, two-thirds of the market is controlled by four players; this is the same as in Germany, while in France 56% of the market is controlled by the top four and in Spain just under 50%. A look at these markets, plus some of the biggest outside Europe, shows that every territory poses challenges for big grocers.

Germany

The British story of stellar growth for discounters and pain inflicted on established chains is well-known in Germany. "German supermarkets fought that same battle two decades ago", said Matthias Queck, a Frankfurt-based analyst for Planet Retail.

It was a skirmish the traditional chains fought with limited success: Aldi and Lidl nowadays have nearly 40% of the market. "What we're seeing in Britain may just be the pangs of a market adjusting its prices and the power balance between supermarkets and discounters to what we are used to seeing in continental Europe," he added.

But while "quality" supermarkets such as Edeka and Rewe may still be smarting, they are travelling in a very different direction from the one chosen by their British equivalents. "If anything, they have for the past few years been trying to shake off the cheap, 'discount' image and convince customers that paying a little bit extra is worth it," said Queck.

As in the UK, discounters and supermarkets in Germany are faced with shoppers who are less and less willing to drive out of town for their weekly shop, and more likely to do small, frequent trips in urban areas. In recent years, the trend has led to a revival in big cities like Hamburg and Berlin of the traditional Tante Emma Läden or corner shops, which have been able to be much more flexible in reacting to trends or food scandals than their bigger rivals.
Philip Oltermann

France

With two German discounters muscling into the market and a growing aversion to megastores, the French retail industry bears some similarity to the UK's. As here, the French grocery sector is dominated by a small number of large firms. The main groups are Carrefour, Leclerc, Intermarché and Systeme U, plus the familiar names of Aldi and Lidl.

The French grocery retail market was worth around €221bn in 2012 according to researcher IGD – similar to the UK total. Hypermarkets – outlets with more than 2,500 square metres of floor space – accounted for 42% of grocery sales in 2013, but have been declining in popularity since 2008, in a trend that has been repeated in the UK. Supermarkets and local stores have fared better. There has been a greater demand for neighbourhood outlets and shops on a more "human scale", according to a report from the French government.

But while competition in France is fierce, it is not as openly cutthroat as in the UK and it is much more tightly regulated. Strict laws on the price of branded goods mean they should not be significantly cheaper in one store than in others as this would constitute "unfair competition". Laws also regulate opening hours and ban selling at a loss. Shops are not allowed to open on Sundays, or very late at night, except in designated tourist areas. Small family-owned and run "corner" shops are exempt from the regulations.

One area where food shopping in France differs greatly from in the UK is the general absence of marketing devices such as buy-one-get-one-free (bogof) offers. While some supermarkets have introduced the concept, Arnaud Joly, an expert on food retailing for the French bank Société Générale, said French shops preferred adjusting prices to promotions.
Kim Willsher

Spain

In the UK, Tesco is still, despite its travails, the clear market leader, and the situation is similar in Spain, where Mercadona is the undisputed powerhouse. Since 2012, the family-owned chain has had more than a fifth of market share, more than twice that of its closest competitor, French group Carrefour. While rivals fought to survive the country's economic crisis, Mercadona has grown, hiring thousands of employees to staff new stores opening across the country. The chain's allure lies in its low prices. Mercadona, which now has more than 1,500 stores across Spain, has made a science of trimming costs across the board.

Its rivals attempt to compete with aggressive promotions and innovation. Carrefour had introduced a loyalty card and led the way when it came to innovation, said Eric Batty of Kantar Worldpanel. For example, it started offering ready-made sauces and prepared meals that were not available in other supermarkets. Meanwhile, a push by Lidl in Spain to add fresh produce to its stores made it the fastest-growing chain in terms of market share last year, increasing from 2.7% to 3.1% in the first half of 2013 and 2014 respectively.

As the financial crisis eased its grip on Spain, shoppers' habits were shifting, said Batty. During the crisis, many stayed close to home, buying only what they needed week-to-week in an effort to save money. So far 2014 has been marked by a return to the out-of-town hypermarkets, where households shop less often but buy more on each trip.

Those who stand to lose out as this trend grows are the specialists, such as bakeries, greengrocers and butchers, traditionally a big part of Spain's grocery offerings.
Ashifa Kassam

Italy

Grocery shopping in Italy may conjure up images of vigorous open-air markets, or perhaps quaint delicatessens selling mouthwatering produce from the hills of Umbria.

And so it is – for the privileged few. But for 60% of Italian families food shopping regularly involves a trip to one of the increasing numbers of discount supermarkets, such as Lidl or Eurospin. But dependence on the big stores is not on the same scale as in the UK; most Italians have an attachment to local food shops. But habits were changing, and the growth of supermarkets and discount stores "has made those shops' lives tough", said Francesco Daveri, an economist at the University of Parma.

That is not the only area of competition. Between the discount stores, supermarkets and hypermarkets there is a constant battle going on to woo the increasingly cash-strapped consumer. "Supermarkets are really the only sector [in Italy] where competition has worked out," said Liliana Cantone of Italian consumer association Altroconsumo. "The players are doing their best to offer lower prices, and consumers can really benefit from this."

As in Britain, the big names – among them Coop and Esselunga – were jolted by the arrival of discount stores selling similar products for much lower prices. Before long, consumers saw ever more vigorous battles over the prices of Easter eggs and Christmas panettoni, with loyalty card schemes vying with extravagant cuts for the best results.
Lizzy Davies

United States

For the past 25 years America's grocery shopping habits have been dominated by the "supercentre". Many thought the dominance of massive, out-of-town stores – mainly owned by Walmart – would kill local supermarkets.

But something is changing. This year Kroger, the US's largest supermarket chain, will pass $100bn revenue mark, despite having no presence overseas. This local chain has now enjoyed 43 consecutive quarters of growth. Walmart has taken note and is trying to get back into smaller, urban supermarkets after spending years trying to kill them off.

John Rand of Kantar Retail in Boston has spent 47 years watching the US grocery business. The landscape, he said, had seldom been so competitive.

"There was a generation of shoppers who were fairly comfortable with a long, weekly shopping trip," he said. "It was like the early days of America, with people going to market day once a week." But he said today's harried consumer wanted more convenience and to spend less time in the aisles.

The result has been an increase in the number of options available to consumers. Where once they had two or three local competitors, now they have four. "But still, if you are number four in that group, you are in trouble," he said.
Dominic Rushe

Australia

The Australian grocery industry has for years been characterised by a battle between two giants. Together, supermarket chains Coles and Woolworths control roughly 70% of the A$82bn (£44.5bn) sector. Aggressive price wars between the two are very visible, which is good for consumers but not so much for suppliers. The Australian Competition and Consumer Commission has carpeted both for their practices, and Jamie Oliver was dragged into the row when farmers complained of being charged a levy by Woolworths to pay for an ad campaign featuring his brand.

Coles and Woolies' vast influence doesn't end at the grocery checkout. Their operations extend into alcohol, convenience stores, fuel, hardware, general goods, hotels and gambling. What's left of the market is fought over by independents – especially Metcash, which runs IGA, Foodland and other franchise brands – and big discounters such as Aldi and Costco. Aldi has made huge gains in market share in Australia, from about 3% in 2005 to 10% this year, with sales projected to keep increasing. Naturally this raises alarm bells for the big two and their duopoly.
Jim Poe

Japan

Tesco is one of several foreign supermarkets to have tried and failed to succeed in Japan's notoriously challenging retail market. The firm pulled out of Japan in 2011 after spending eight years and £250m attempting to woo Japan's picky shoppers customers and navigate the country's labyrinthine distribution system. Japan's retail market, the second-biggest in the world, includes myriad supermarket chains, some of which operate only a handful of stores.

Despite the fragmentation, a battle for control was emerging amid the arrival of new players and a flurry of mergers and acquisitions, said Roy Larke, an expert on Japanese consumer trends. Japan's biggest seller of food is now 7-Eleven, while the biggest supermarket chain, Aeon, has taken advantage of the regionally diverse food supply system by opening a string of local subsidiaries.

The market is far from impenetrable, however. Walmart, the only "everyday low pricing" operator in Japan, has forced domestic rivals to keep their prices low where it operates stores. Costco, with 20 stores nationwide, has proved a success, offering prices comparable to those found in the US. Tesco's foray into Japan was frustrated, in part, by consumer idiosyncrasies.

While bogof promotions are rare, individual supermarkets launch special deals every week, prompting shoppers to switch loyalties in search of a bargain.
Justin McCurry

China

To the UK's beleaguered supermarkets, China may look like a gold mine. The country's grocery industry became the world's largest in 2012, and, according to the Institute of Grocery Distribution, reached US$1tn last summer, more than three times the size of the UK's. Yet the market is fractured and highly competitive. While western companies such as Walmart, Tesco, Metro and Carrefour have been operating in the country for years, if not decades, they're increasingly vying with a cohort of local chains, discount shops and convenience stores for customers who would often rather shop online.

"The top 10 or 12 companies represent less than half of the market," said Matthew Crabbe, of market research firm Mintel. Many foreign chains are expanding into second, third and fourth-tier cities, far from the bright lights and saturated markets of Beijing and Shanghai. Yet even there, supermarket chains are struggling. Local competition is fierce, the economy is slowing and e-commerce is on the rise. In 2013, Walmart, Carrefour and Tesco saw their mainland expansion slow by 27%.

Walmart shut down five branches.

"All of these chains have realized they really need to localize and understand their market," Crabbe said. "It's not about covering as much of the country as possible; it's about adapting to the regions you move into," said Crabbe. Some regions demand ample supplies of live fish, for example; others can't be without certain types of vegetables. Convenience stores are proliferating in pedestrian-friendly cities such as Shanghai; hypermarkets remain the model of choice in traffic-choked Beijing.
Jonathan Kaiman

South Africa

For tourists to South Africa the big five means wild animals, but for supermarket shoppers it's a choice between Shoprite, Massmart, Pick n Pay, Spar and Woolworths. The competition is intense, with each regularly hyping loss-leading bargains, albeit not yet at cut-throat British levels. Many analysts believed the landscape would be transformed by the entrance in 2011 of Walmart, whose $2.4bn (£1.5bn) takeover of Massmart was fiercely opposed by trade unions. The company declared a price war but its footprint remains relatively small compared to giants such as the Shoprite group, whose chief executive, Whitey Basson, is South African retail royalty.

Meanwhile premium retailer Woolworths, the country's equivalent of Marks & Spencer, is currently thriving despite being 24% more expensive than Pick n Pay on fresh food, according to a JP Morgan supermarket pricing survey published earlier this year. Woolworths' profits were up 15% in the year ending 29 June. It seems South Africa's growing middle class are willing to pay.
David Smith