Supermarket Slippage

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There is little doubt that supermarkets have been weathering the recession rather well with many reporting strong profits and increased sales. And, with a large proportion of consumers looking to avoid costly nights out and takeaways, many of the big supermarkets have rushed to fill the void – the result being that, overall, the major chains have seen their grocery sales lifted by 4-5% year-on-year in recent months, according to figures from market research firms Nielsen and TNS Global.

Below the surface of these seemingly positive figures, however, there has been a significant underlying shift that could be troubling for some segments of the retail grocery sector. We surveyed a broad spectrum of consumers and found that more than a third of shoppers have switched from their usual grocery supermarkets to ‘value’ retailers, as once-loyal customers look to trim their household expenses by turning to cheaper alternatives.

This underlying shift has been occurring at different levels in the grocery sector and has become more pronounced as the recession has progressed. Our latest figures show a higher proportion of people moving to ‘value’ alternatives for the long term than a similar study conducted earlier in the year. It 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 as the recession has dragged on.

The study also found that, now that the economic outlook is improving, only 10% of UK consumers plan to move back ‘upmarket’ within the next year, representing a net loss for higher-end supermarkets of 26% in the longer term. A similar study we conducted in May found that a net total of 21% of shoppers had moved downmarket and planned to stay there. The latest results indicate that, as the UK has continued 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.

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, 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 curtailed spending elsewhere.

A valuable tool in all of this retail grocery market turmoil is the customer loyalty programme. While earlier in the year, Tesco’s market share dipped in the face of consumers going downmarket looking for better deals, the market leader has managed to turn things around and in November actually saw slight year-on-year growth in its market share for the first time since the end of 2007, according to TNS figures. This can largely be attributed to the aggressive relaunch of Tesco’s Clubcard loyalty scheme.

In addition to leveraging their loyalty programmes, Tesco and high-end grocery chains such as Waitrose and Sainsbury’s have been introducing budget ranges in a bid to stem customer churn – the essential Waitrose range being a perfect example. At the same time, value supermarkets have been using price promotions to try to attract more customers away from the middle and high-end segments of the retail grocery market and keep those who have already moved.

With certain players in the very top end and the bulk of competitors at the bottom segment of the retail grocery sector thriving in very competitive circumstances, the supermarket chains and the independents being squeezed in the middle now have to find the right tools to regain eroded market share and win over consumers rethinking their shopping habits, as the prospect of a recovery becomes more of a real possibility.

Andy Wood
GI Insight
Andy Wood, Managing Director, GI Insight, has over 21 years of experience in the field of database marketing and vast experience in the creation and management of retail loyalty programmes. His particular skills lie in the analysis of data and its application to improving customer communication, turnover and ultimately profit

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