Food retailers are competing on customer service

Posted on December 3, 2014 by brownsourcing

Food retailers are facing a tough time in the UK at present. The biggest of them all, Tesco, is facing up to some very unusual problems related to accounting errors (still under investigation) and Sainsbury’s has seen sales fall in each of the past three quarters. It’s tough out there on the British High Street right now.

But in some areas of food retail, things are going OK. At the budget end of the market there is Aldi, where the last set of reported profits were up 65% and they plan to open 65 new stores in 2015. At the more luxurious end of the food retail market, Waitrose has seen both sales and market share increase in the past year.

So there is a complex market developing in food retail where high-end stores can differentiate themselves with free cups of tea or coffee and free food samples at in-store delicatessens and at the other end of the market, a limited range of products that are sold at the lowest possible price.

Both these models appear to be working well, but all the stores in the centre ground have a problem trying to plan where they should be, competing with the value retailers or improving their service and not worrying about the price? They also face changing store preferences as British customers are switching their habits to shopping for a small amount more often rather than loading up the car at a hypermarket just twice a month.

A new study published by the Institute of Customer Service suggests that the answer may be to explore a stronger focus on customer service. 58% of customers in this new research said that they would not sacrifice the quality of service for the price of the products they purchase.

This is quite important as it shows how almost 6 in 10 customers really do care about customer service in the food retailers they use. What is even more important to add is that 26% of customers are so focused on service they are actively prepared to spend more to receive a better service from their food retailer.

That’s three-quarters of customers who have a strong focus on the level of customer service demonstrated by the food retailer they use. It is clear that brands such as Waitrose or Marks and Spencer are already targeting these customers, but when considering whether service or value is the place to focus, it is interesting to see the 3 out of 4 customers see the quality of service as more important than price.

This is just one study and it is likely that if every British mid-market food retailer tried to go up-market at the same time then it would not work as suggested. The overall national situation is far more complex, but it is interesting to see just how much food customers value service when many media reports assume that the path to success is just to stack it high and sell it cheap.

The chairman of Tesco, Sir Richard Broadbent, made a great observation back in late 2013 when he said: “The company that provides the best relationship with the customer will win — not through product, but through the best experience.” All of us are customers of food retailers. How do you balance the desire for great service with good value when you are shopping?