Supermarkets have apparently weathered the recession well with many reporting strong profits and increased sales, but there has been an underlying consumer shift that could be trouble for some segments of the retail grocery sector, according to Andy Wood, managing director for GI Insight.
GI Insight recently surveyed a wide range of consumers and found that more than one third of shoppers have switched from their usual supermarket to 'value retailers' as once-loyal customers seek to trim household expenses by turning to cheaper alternatives.
This underlying shift, which Woods calls 'supermarket slippage', has been occurring at different levels within the grocery sector and has become more pronounced as the recession has progressed. The firm's latest figures for 2009 show a higher proportion of people moving to 'value brand' alternatives for the long-term than in a similar study earlier in the year. The survey found that 36% of UK consumers have gone downmarket with their grocery shopping for a significant portion of their food purchases in an effort to economise.
The study also found that, now that the economic outlook is improving, only 10% of consumers plan to move back upmarket within the next year, representing a net loss for high-end supermarkets of 26% in the long-term. A similar study in May 2009 found that a net total of 21% of shoppers had moved downmarket and planned to stay there. The latest results suggest that, as the UK continues to face a difficult economic climate, more consumers who have moved to less costly alternatives are now beginning to see this as a long-term solution.
There is no question that, as they have faced one of the deepest recessions in recent decades, consumers have become far more price conscious. Even if there are some purchases where consumers are determined to maintain quality over price - perhaps their choice of coffee, a perfume, organic food, a favourite entertainment, a clothing brand, or a particular electronic gadget - there will equally be areas where each chooses to economise. Food is clearly one area where many seem to have decided they can cut their overall spending very easily.
However, grocery shoppers are also loosening their purse strings a little in other ways. As they have settled into new shopping habits, some consumers have started to relent on their cost-saving efforts by easing up on what they buy rather than where they buy, and these consumers are starting to make certain brand name purchases that they might have forgone earlier in the year. Brand loyalty is another element of consumer shopping behaviour that has undergone a major change during the recession. A recent study by price comparison website uSwitch.com showed a swing of almost 75% by British consumers to private labels from name brands. These trends at the brand level are more fluid, however, than the shift in supermarket loyalty. Brands may have an easier time winning back lapsed customers and holding on to new ones once the economy turns around, as consumers gradually shift back to 'quality' products.
The latest GI Insight survey found that 15% of respondents had already started to buy quality brands again, even though they are more expensive. Brands have recently been trying to retain existing customers, regain old ones, and attract new consumers with price promotions. Research earlier in 2009 found that more than half of UK consumers had noticed a very significant rise in the number of price promotions and special offers they received through direct marketing. uSwitch found that 74% of consumers now make use of money-off vouchers, compared with only 26% one year before.
The main beneficiaries in the retail grocery sector of this drive to economise have been those large-scale supermarkets that have pushed everyday low prices (such as Asda), while some of the more basic bargain retailers have also seen benefits. At the other end of the spectrum, certain premium players have also benefited as they have successfully marketed own-label brands while encouraging customers to treat themselves to special luxury food products to compensate for lower spending elsewhere.
The main supermarkets can be divided into a number of categories: premium supermarkets (e.g. Waitrose and M&S), more mainstream mid-price players (e.g. Tesco, Somerfield, Co-op and Sainsbury's), as well as everyday low-price (EDLP) players (e.g. Asda and Morrisons), and lower-end basic outlets (e.g. Iceland, Lidl, Aldi, and Netto).
According to recent figures from TNS and Nielsen, Co-op and Tesco have, until very recently, seen their market shares eroding as consumers searched for cheaper alternatives. Meanwhile, Somerfield also saw its market share decline in the wake of Co-op's purchase and restructure of its operation, and mid-priced independents have also seen their portion of consumer spending drop. At the premium end of the market, Waitrose has been very successful at pushing its top ranges to cater for those looking for a "dining out experience at home", while also emphasising its value ranges to help stem customer defection.
One of the most valuable tools in this retail grocery market turmoil has been the humble customer loyalty programme. While earlier in 2009 Tesco's market share dipped in the face of consumers going downmarket, the company turned things around and - by November - saw year-on-year growth in its market share for the first time since the end of 2007. This can largely be attributed to the aggressive relaunch of Tesco's Clubcard loyalty scheme. In addition to making effective use of their loyalty programmes, Tesco and the other high-end grocery chains have been introducing budget ranges in a bid to stem customer churn (for example the Essential Waitrose range). At the same time, value-based supermarkets have been using price promotions to try to attract more customers away from the middle and high-end segments of the market and to keep those who have already moved.
As a result of the major players at the top and the bulk of competitors at the bottom end of the retail grocery sector, those in the middle are being squeezed more and more, and will need to find the right marketing tools to regain their eroded market shares and win back consumers who are increasingly rethinking their shopping habits.