The big grocery retailers in the UK underwent considerable growth between 1990 and 2010. In more recent years, this trend has reversed, with most of these supermarkets experiencing a slump in sales. Justin King, former CEO of Sainsbury’s UK, explains the shift in consumer behaviour driving this phenomenon, and the implications for the rest of the retail world.
Over the past five years, there has been a substantial shift in UK shopping patterns. Previously, Britons shopped for groceries once a week at a grocery store that offered everything under one roof. These days, they buy their groceries more regularly at smaller shops located closer to home. This shift signifies the demise of supermarkets and the revival of the convenience store market, according to Justin King, former CEO of Sainsbury’s, the UK’s third-largest supermarket chain.
King was speaking at the PMA Fresh Connections Conference in Cape Town recently. The convenience store market sector generated sales of £37,7 billion (R795 billion) over the past year, representing 5,1% year-on-year growth, according to the Institute of Global Distribution (IGD). During the same period, overall growth for the retail market was only 1,7% to £177,5 billion (R3,7 trillion). Predictions are that sales in the grocery store market will remain stagnant at about £125 billion (R2,6 trillion) until 2020.
“For an industry that has seen 40 years of growth, this has come as a tremendous shock,” says King. The ‘Big Four’ UK supermarkets – Tesco, Sainsbury’s, Asda and Morrisons – are trying to adapt to the changing environment by expanding their businesses into the convenience market. “A big retail turn-around like this isn’t easy, however. All of these retailers are struggling to make profits under current conditions,” King says.
Tesco, which has invested heavily in international expansion, has probably been hit the worst. This year, the company reported a loss of £6,4 billion (R134 billion), the biggest loss in the retailer’s history. About £4,7 billion (R98 billion) of this figure has been ascribed to a decline in its UK megastores due to reduced patronage.
Subsequently, the property value of these stores has also fallen. The company indicated that it would close 43 of these stores in an attempt to curb further losses. The company’s market share has also declined from a 32% high in 2007 to 28% this year.
According to King, it is important for international retailers to take cognisance of this shift in retail trends, as UK trends usually spill over to retail markets in other countries.King identifies fickle shopping habits, the increasing search for convenience, and online shopping as the greatest drivers of this changing market.
Fickleness and convenience
The days of consumers with long grocery lists going from store to store to compare prices have long gone. “Let’s assume a product is 10% more expensive than in a traditional store. Today’s consumers don’t mind paying more because their time has become so valuable to them,” King says.
This shift has also resulted in growth in the discount chain store sector, which had remained stagnant during the period in which supermarkets dominated the retail market. “Higher-end retailers, such as Waitrose and Marks & Spencer have, however, also seen growth in seven of the past 10 years, clearly indicating that it is not just about price,” King says.
Consumer fickleness is also a challenge for Asda, despite most of its client base being very brand loyal and buying only Asda products. Growing the existing customer base would be very difficult under current market conditions, according to King.
Convenience stores have also become more centrally located. Previously, retailers operated these stores in more remote areas. However, German retailers with outlets in the UK have now started to open stores in affluent neighbourhoods with great success and are offering a wider product range, especially in fresh produce.
“Location is everything here. You need to be close to public transport. Having a shop 5m further down the road than its competitor can result in that shop not making any money,” says King. In the past, these stores were used only for ‘emergency’ shopping to get basic foodstuffs.
“The rise of the convenience market has resulted in consumers expecting to find fresh and good-quality produce at any time during the day,” King says. Freshness and good quality is, however, not all consumers want. They also want food to be produced in an environmentally friendly and ethically responsible way.
“South Africa is well positioned to supply the market with good-quality produce at very competitive prices, thanks to the weak rand. However, farmers have to ensure that they comply with the rising demand for healthier and more environmentally-friendly produced foodstuffs if they want to remain relevant,” he says.
Growing Internet sales
The UK’s online grocery market – valued at £9,57 billion (R210 billion) a year – is the second- biggest in the world after China, according to IGD. However, King explains that after 15 years, the market represented only 5% of the overall grocery market in the UK, despite billions of pounds being invested by various companies.“Most companies are still losing money every time they do a doorstep delivery. But this doesn’t mean this market isn’t important.” Current forecasts indicate that the online shopping market could double over the next five years.
Email Justin King at email@example.com.
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