Can UK Grocers hold off the discounters

Copied from linkedin: Nick Harrison on LinkedIn: #groceryindustry | 24 comments


Nick Harrison
Nick Harrison• 1stRetail and Consumer Leader | CEO | C-suite | ex- Strategy Consulting Global Practice Lead
1w • 1 week ago

The big questions facing UK retail: Today, can grocers hold off discounters?
There are big changes afoot in retail and I thought it’d be interesting to post on some of the big questions. I’d love to hear thoughts back.

Fifteen years ago, the big-4 had minimised discounter growth, investing in own brand, loyalty, non-food, etc. Most customers judged that it just wasn’t worth going to a discounter and Aldi & Lidl were <5% share. After the 2008 crisis discounters took off: driven by store roll-out and squeezed consumers. The model is simple, offering quality products at amazing prices, but with a narrower range and simpler store experience. In countries such as Germany and Denmark it has powered them to over 40% share. In the UK today, they are at 16% and growing.

Q1: Could the UK get to 40% discounter share?
Unequivocally yes. If it can happen in Germany and Denmark, it can happen here. One hears excuses, “they’ll never get the sites”, “UK customers are different” – I don’t believe any of them. And the cost-of-living crisis will help.

Q2: Why do grocers find it so hard to resist discounters?
Full-basket grocery is being ‘cracked open’. Customers are splitting baskets, Aldi price-match is lowering margins, and switching to low price items is eroding E2E profitability. What’s more online - which discounters don’t offer - is adding cost to many baskets. The result is a loss of volume, a reduction in average profitability, and a widening of the spread of customer profitability, resulting in a big tail of less valuable shoppers – a business killing trend.

Q3: What should the grocers do to ‘save’ full-basket grocery? My prescription is:

  1. Match discounter price-quality on every product, removing any reason for basket splitting. Most grocers still have big price gaps. For example, I noticed 20% on fresh orange juice the other day; one of many.
  2. Reduce sourcing and operating cost by cutting SKUs in categories where “choice” is not relevant (butter, loo roll, etc.) and striking long-term (3-5 year) supplier partnerships in key OL categories, giving stability to manufacturers in return for amazing costs: A car industry not a retail mindset.
  3. Reduce multichannel costs by moving from store-picking to an automated micro fulfilment centre model (MFC). Then drive multichannel as a growth advantage, as contribution margins should be back to in-store levels.
  4. Develop the capability to influence customers to be more profitable via. smart 1-1 communication (e.g., personalised offers, product recommendations, channel & delivery nudges).
  5. Innovate harder on product, and on the digital customer experience – to create genuine reasons for loyalty. My favourite idea is the digital shopping assistant which helps customers save money, eat better, etc. with recommendations and product switches.

Of course, most of this is easy-to-say and hard-to-do – but taken together it would, in my view, transform the prospects of the average grocer.