The Big 6 UK Food Retailers: How supermarkets are responding to the discounter threat

As Aldi leapfrogs Waitrose to become the sixth largest food retailer in the UK, this case study assesses the shift in consumer trends and industry disruptors that has led to a much more competitive food retailing environment. It examines the common actions of the six biggest non-discounters and where their strategies differ, and evaluates their efforts.

Scope

  • Assesses the wider economic situation which has led to a shift in UK consumer tendencies.
  • Analysis of how the discounters are competing so successfully.
  • Evaluation of the incumbents' responses to the discounter threat.

Reasons to buy

Why are the supermarkets losing market share to Aldi and Lidl?

How has the economic downturn affected UK consumers' spending habits?

How have the supermarkets responded to Aldi and Lidl?

What could the UK food retail market look like in the future?

Companies mentioned

None

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Table of Contents

OVERVIEW

Catalyst

Summary

THE SHIFT IN THE UK FOOD RETAIL MARKET

UK consumers are much more price sensitive since 2008

Real wages continue to stagnate ...

OVERVIEW

Catalyst

Summary

THE SHIFT IN THE UK FOOD RETAIL MARKET

UK consumers are much more price sensitive since 2008

Real wages continue to stagnate in the UK

Unemployment is falling, but has failed to translate to higher productivity or incomes

Changing consumer habits present a window of opportunity

Consumer habits are unlikely to change

Aldi and Lidl have gained at the expense of the big four

Aldi and Lidl deliver cheap products

Discounters have become acceptable to higher income groups

Discounters have sparked deflationary price wars

COMMON INDUSTRY RESPONSES

All players have begun to lower their prices

Brand matching is becoming more common

ASDA may be the only company able to engage in sustained price cutting

Many are funding price cuts by restricting expansion

Improving product range and quality of service

Smaller store formats an advantage against discounters

Aldi is expanding with smaller stores

Online grocery shopping increasing

Aldi is monitoring e-commerce

TESCO RISING?

Tesco financial overview

Tesco entered 2015 embroiled in controversy

Tesco overstated first half profits significantly in 2014

The company has been battling since Philip Clarke's appointment

Tesco continues to divest products and exit markets

Tesco's international ambitions have been thwarted

Tesco's size insulates it from price wars to an extent

Clubcard provides advantage with customer data

Tesco's first quarter results are tentatively positive

Attempting to restore brand image through CSR measures

Tesco criticized for executive pay and supplier practices

A potential rebellion over executive pay failed to materialize

Tesco alleged to flout law with manufacturers

ASDA: GOING FULL WAL-MART

Wal-Mart financial overview

Wal-Mart's size gives ASDA an advantage

ASDA's failure in convenience sector could cost it

ASDA may only seriously compete in smaller sector by acquisition

ASDA's focus is expanding e-commerce

Click-and-collect expansion to cater for growing market

ASDA's online stores are being rationalized

ASDA's diversification

ASDA's expansion into petrol forecourts

Q1 2015 saw ASDA perform the worst of the big four

J SAINSBURY'S: FIGHTING FIRE WITH FIRE

Financial overview

Sainsbury's forced to adapt to price elasticity

Sainsbury's convenience sector is growing strongly

Sainsbury's further expanding ecommerce capabilities

Sainsbury's using established discount brand in Netto

Further diversification into non-food an option

Sainsbury's is further expanding into financial services

Nectar card gives customer data advantage over discounters

Sainsbury's Q1 2016 sales fell for sixth consecutive quarter

W M MORRISONS: INERTIA CREEPS

Financial overview

Morrison's has disadvantaged itself in several ways

Morrison's lack of product diversity leaves it vulnerable

Morrison's delay lost it valuable inroads in the online market

Morrison's has faltered in a bid to close the gap

M local failed to meet expectations

Too little too late for Morrison's digital transformation?

Match & More card specifically targets discounters

Integrated business model allows upstream efficiencies

Q1 provides mixed results for the company

Simplification of offering progressing

CO-OPERATIVE: BACK TO BASICS

Financial overview

The Co-operative is rebuilding following a prolonged crisis

Co-operative bank was bailed in

Co-operative food and the True North strategy

Somerfield acquisition effectively negated

Co-op convenience estate benefitting from changing trends

Financial troubles permitted rivals to gain

True North is addressing price and product range

Prices are cut but smaller size limits options

Co-op excluding itself from supermarkets and online channels

Co-op's diversification has no potential for synergies

WAITROSE: CARVING A NICHE

Financial overview

Waitrose is not immune to discounter threat

Waitrose has price matched, eroding its margins

Online market burgeoning but becoming more competitive

Utilizing John Lewis for click-and-collect to drive traffic

Waitrose has highly loyal customers

Waitrose is further expanding its customer experience

Waitrose entering convenience sector

CONCLUSIONS

Industry disruption bleak for big six

APPENDIX

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