The UK and Ireland, markets long dominated by the power of the major supermarkets, could be on the brink of a significant change. German discount grocery chain Aldi and its rivals, Lidl and Netto, have made been making striking gains in the countries’ grocery retail markets over the past 12 months, a trend that is now forcing major supermarket groups to adopt new strategies.
In the wake of Aldi’s announcement that its sales had risen by 21 per cent between April and June this year compared with the same period of 2006, the UK’s top supermarket group, Tesco, announced it was developing a new range of cut-price, own-brand products in an attempt to counter Aldi’s increasing consumer appeal.
In a recent interview with The Guardian newspaper, Aldi UK managing director Paul Foley revealed that the discounter was expanding faster in the country than any other grocery retailer. The group now has close to a 3 per cent share of the UK grocery market.
In fact, with shoppers apparently migrating towards cheaper offerings in the discounters and Walmart-owned Asda, Tesco shares dropped to their lowest level in a decade during June.
In Ireland, although Aldi and Lidl’s expansion in the country’s grocery sector has not been as rapid as was expected when the discounters entered the market in the late 1990s, both are beginning to open outlets at a greater speed. In fact, according to a report from analyst Planet Retail, some sources in the sector predict that by the end of 2009, the retailers could hold a combined 15 per cent share of the Irish grocery market, with a predicted total of 150 stores.
The currently popularity of Aldi in the UK appears to be partly explained by the soaring levels of food costs in the country, which have risen by 9 per cent over the past 12 months, according to the UK Office for National Statistics (ONS). In fact, detailed ONS figures have shown that consumer expenditure on fruit and vegetables increased by 10.1 per cent and 9.9 per cent respectively in 2007 compared with the year before.
However, to get matters into perspective, Aldi and its fellow discounters still have a considerable way to go before they begin to eat into the market share of the UK’s so-called ‘big four’ – Tesco, Sainsbury’s, Asda and Morrisons.
With an estimated 23 per cent share of the market, Tesco remains the dominant player in the UK grocery sector, even if the country’s competition authorities sometimes appear reluctant to say as much. The retailer currently operates over 2,350 stores across the country and, even though much of its focus is now on its overseas interests, Tesco remains a force to be reckoned with. One of the company’s most formidable tools for growth, according to Planet Retail, has been the success of its consumer marketing programme, data for which was gathered through its loyalty card scheme.
While continuing to espouse keen prices, the analyst continues, Tesco has broadened its pricing structure to embrace discount and premium prices enabling it to capture consumers from a wide income spectrum and compete with retailers across the market.
Although second and third placed Sainsbury’s and Asda have made some gains in recent years, with the former in particular catering for a growing demand for fresh, healthy food sourced with integrity, Tesco remains the dominant force in the UK.
Tesco is also making its presence felt in Ireland, where it is now the second-placed supermarket operator in the country after entering the market in the late 1990s.
The retailer now operates 124 stores in Ireland, having opened six new outlets this year so far. Moreover, although Tesco initially found the Irish market a little tougher to crack than its UK equivalent, Planet Retail believes 2008 is likely to see a renaissance in its operations in the Republic.
Despite this, Musgrave SuperValu Centra (MSVC) remains the Irish grocery market leader, operating 200 supermarket outlets in the country, seven of which were opened last year. Further openings of Super Valu supermarket outlets are expected during the course of 2008, according to the analyst.
Connecting with consumers
Richard Parke-Davies, managing director of Total Produce-owned Redbridge Worldfresh says his company has worked for many years to forge an “enviable relationship” with many of the UK’s top retailers, based on “many years of sustained focus on consumer requirements and innovation”.
Of course, he admits, retailers have to seek the optimum proposition for their customers, but he says Redbridge “expects and encourages them to be challenging and continually pushing the boundaries” of their relationship as this is “a mechanism in which progress can be forged”.
“Our responsibilities are to balance the consumers’ needs with the capabilities of the market place – given the nature of our business and the many variabilities and vagaries, this is not an easy task,” he adds.
But this is not a question of degrees of happiness, he argues, but rather a matter of establishing a solid and sustainable working foundation in a highly competitive commercial environment.
“Our capabilities have to be aligned to consumer demands if an equitable relationship with the retailer is to be maintained,” he explains. “ Traditionally a buyer always pays too much and a seller never gets enough. The level of professionalism on both sides of the value chain continually challenges this paradigm.”
Topical themes such as food miles and carbon footprint, says Mr Parke-Davies, continue to act as a “catalyst” for changing consumer behaviour patterns.
One such consumer trend is that of supporting locally grown produce, which Mr Parke-Davies says has helped provide support for local growers and has also raised greater awareness of the environmental agenda.
To target this market segment, the company has, he says, “invested significantly” in developing its own varieties of berries specifically targeted for production within the UK. Mr Parke-Davies expects ethical trading and concerns surrounding the environment to continue to form two key trends over the coming years as societal pressure mounts on companies to consider the results of their actions on a macro as well as a micro level.
The healthy eating agenda, and in particular the debate over rising obesity levels in the UK, is providing a further trend and an opportunity to promote the benefits of fresh produce, he argues.
However, all of these factors are mitigated somewhat, he continues, by the fact that the present economiwc climate is impacting on consumer behaviour as disposable income levels are squeezed.
“Rising costs driven by factors outside the suppliers’ control, whether this is currency exchange rates or increased fuel prices all add to inflationary trends that remain challenging to manage within the narrow produce margins,” he adds.
The constraints on consumer food spending have also been highlighted in discussions on another hot topic that has gained considerable press coverage in recent months, that of food wastage.
The UK government recently urged retailers to end ‘buy one get one free’ grocery deals that encourage bulk buying in a bid to curb food wastage. According to official figures, British consumers throw away an average of 6.7m tonnes of food every year, worth an estimated €12.5m.
Mr Parke-Davies believes initiatives that increase awareness of the issues surrounding waste and how to better manage food should be applauded if they are targeted at encouraging consumers to further engage with their food.
However, he argues that promotional activity and multi-buys can support the management of consumers’ food budget, providing an “essential element” within their shopping basket.
“In a commodity market, where price and volume are inter-related, multi-buys can act to balance the supply and demand equation,” he argues. “Encouraging their elimination should not be undertaken without considering the full implications.”
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