Thomas Spencer

How to Compete with the Supermarket Discounters

Background
I have always been interested in the Retail market, especially supermarkets. When I was a student the “Just in Time” model was being pushed, and supermarkets provided a great fit for this model. The industry is driven by the whims of its customers and the British weather and it has to be able to build supply chains to adapt e.g. Barbeques on the shelves when a sunny weekend is due. The whole industry is cut-throat driven by low margin and high turnover and long payment terms. The aim is to sell the product before you owe money, allowing your treasury department to make money on foreign exchanges and financial markets prior to paying your supplier. In the 90’s Sainsbury’s was the market leader with Tesco catching up quickly. Iceland and Kwik Save covered the budget side, and were experienced by students up and down the country. Aldi and Lidl were in the UK market but didn’t have much of the market share. Kwik Save in short messed up, they had a great “No Frill” model. The stores offered no luxury to the shopper other than a great price, the tills were all manual, the floors were untreated concrete and most of the shops were small and carried a limited product line. The management went on a drive to improve the stores and product line as well as focusing on growth through acquisition, this put up the overheads up cutting the margins and eventually led to a merger with Somerfield in 1998. This wasn’t a good fit and later Kwik Save went into Administration in 2007. Although Kwik Save still exists, it is now a much smaller operation. These mistakes were not made by Lidl and Aldi who stuck to their core principles and are now starting to make an impact on the Big Players in the UK market. Sainsbury’s and Tesco have been battling for Top Spot in the UK market for as long as I can remember. Tesco stole a march on Sainsbury’s where their “Tesco Value Range” (introduced in the 1990’s probably to counter Kwik Save) and Clubcard the latter of which must have required significant IT spend to support this. By the late 1990’s Tesco had overtaken Sainsbury’s as the biggest supermarket in the UK. This has remained status quo through to the current day, where we now see the Discounters Aldi and Lidl starting to make inroads into the market share of the big supermarkets. Currently the reaction has been to go toe to toe with the discounters, but to me this is a short term strategy and with the overheads that the current store bring it won’t prove successful. Therefore it is time to for the big players to review their position in the market.
Next Steps
For me this means returning to the 4P’s marketing. [list style=”square” color=”true”]
  • Price – the main supermarkets are already competitive, but I think simple price matching is only a short term strategy because the discounters overheads are much lower
  • Place – the supermarkets already cover the length and breadth of the UK, almost to saturation point
  • Promotion – with the loyalty card information there is already a wealth of information to tap into that the discounters don’t have visibility of. This is an advantage that I am sure most of the supermarkets are already adept at using
  • Products – the big supermarkets will always carry a greater range of products on the shelves than the discounters and all have an online presence. This though is the area I think but supermarkets have an opportunity for further offer services in the form of Intelligent Fridges. [/list]
Opportunities
Intelligent Fridges have been around for a while, and already offer services that will help many users, including adding items to your food order, giving you recipes based on what’s in the fridge and managing the use by date of goods. The reception has not always been positive Smart Fridge? Idiot Fridge more like is Susie Steiners 2012 view of the frustrations and limitations of the Smart Fridge. As with all new technology it has to be intuitive otherwise most users will turn off no matter how useful it is. Apple has done a great job putting a smart phone into the hands of technophobes, the same needs to happen for Smart Fridges. What is needed for the smart fridge is to be able to scan, measure weigh items as they are taken and replaced in the fridge. I believe you have to scan the bar codes and enter the use by date yourself on goods when putting them on the Fridge which no person with a family is going to make time to do. But once that is resolved I can see the smart Fridge really taking off a view shared by Michael Wolf in Is The Day Of The Smart Refrigerator Finally Here?. The next step would be to link the software to your cupboard allowing you to manage all your food. From the supermarkets point of view the concept of linking the Fridge with the supermarket on line service is already available but I think this needs to be taken one step further. The Fridges are currently priced out of most people budget, the LG’s Smart Refrigerator is going to cost about £2000 in the UK. Why not look at financing the Fridges, ASDA, Marks and Spencer, Tesco and Sainsbury’s all have their own banks. They could team up with the Manufactures to create Fridges that integrate with their own internet services and then lease these to their customers. Maybe you link the rental cost with the amount the customer spends with the supermarket, to reward your loyal customers. But to me this is an opportunity to provide a service that the discounters couldn’t and if done correctly generate further brand loyalty as well as another revenue stream. The big supermarkets are not going to stop the savvy customer shopping for bargains, but if they can ensure that the services provided encourage their customers to do the majority of purchases with themselves they will maintain market share. Convenience is still King for families up and down the UK.

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