The (not so) supermarkets

With the publication of another set of dismal market share data from Kantar Worldpanel, we naturally fall into the ‘it’s inevitable’ trap. Doing what they have always done will not change the trajectory of the Big 4 and even Drastic Dave seems to be more down beat than drastic in recent months.

Where there is movement, ie growth, is where there is creativity. This doesn’t need to be limited to small agile businesses. Creativity can be part of the culture of any organisation if it is given the space to breathe.

The Big 4 are less inclined to do that though. With so much attention on what the other grocers are doing, they are not apparently investing time and energy into what they themselves are doing or could be doing to grow the business.

The Big 4 are migrating towards each other and as each tries to out do the other on the same initiatives. Differentiation is diminishing and what is left is not exciting to the customer.

grocers market share aug2015

Grocers 12 weeks market share August 2015

What we want to see in the next 3 months as we move into the golden quarter is confidence made apparent through new exciting advertising, risk taking and bolder moves that set each brand apart. Market growth is sure to follow.

A convenience sized whole in Morrison’s strategy

Morrisons_m_local

Morrisons looks like it will be selling off its convenience chain of stores to an investment company led by Mike Greene who is well versed in how to run them.

While it is common knowledge that M Locals aren’t the jewel in the Morrison’s crown, coming to the party late after all the best sites have gone or paying over the odds for premium locations which were rejected by the grocers ahead of the curve, they are a toe-hold in what is a fast growing sector of the retail industry.

Much like a range-review where buyers are tempted to cut the tail of the weakest performing SKUs, cutting a format out of the equation could be a step too far. Focus on the core business model is absolutely essential. This is where the majority of sales are made and profit is generated. However, if the core business supports a shrinking market, or outdated customer behaviours, the sustainability of that model is challenged.

The convenience sector is strong, and getting stronger. Yes, M Local is not right but with such an opportunity, Morrisons should really be exploring ways to penetrate that market within its core business.

The latest Asda results for their Q2 are the worst that the business has ever seen, and they don’t have a convenience format. Coincidence? Of course there is a lot more to the Asda results than the lack of a convenience format but with customers leaving big box grocers in favour of smaller formats more local to them, Asda are missing the very same opportunity as Morrisons and are inviting customers to switch away from their brand.

Like loss leaders in a range review, loss leading formats are better than missing a sizable chunk of the market entirely. Formats are part of the whole and by saying the business must focus on its core business, neglects growth opportunities. By all means manage the core business to be more profitable so that it can subsidise other formats in the short term while efficiencies and growth opportunities are developed.

A renewed focus on Morrison’s core supermarkets is essential for its business growth, but we suggest that this isn’t where the strategic review begins and ends. Looking forward not inward, is critical for its success.

airport retail

Location and the retail marketing mix

 

airport retail

We know the phrase ‘Location Location Location’ and the impact it has on house prices, the effect it has on fuel prices if you are on the M6 and the fact that retailers can differentiate on price if you are shopping in a convenience location like a train station or airport.

The advances in technology and tills means that many retailers could set a different price for every store. Higher prices have been charged in convenience locations, where a retailer ‘takes advantage’ of the fact that a customer in that location has less choice and will pay a higher price in order to purchase the item, thus boosting the retailer’s profits despite higher rents in premium locations.

The recent revelation that retailers request boarding cards in airports is not a matter of security but rather a way to reclaim tax, has brought into question the ability for a retailer to differentiate its prices and to deduct tax at airports for customers travelling outside the EU.

The short answer is yes, retailers can have different prices for the same item and could pass the tax saving back to the customer. There is a longer answer though which considers the retailers ability to be competitive, the cost to operate in premium locations, and the knock on effect to other locations such as High Street convenience stores.

This recent revelation could have a far reaching impact on price strategy for retailers and what impact it might have across the whole offer. If prices are reduced in convenience locations, how will shareholders be guaranteed returns on investment when margins are therefore cut? Dixons and WHSmith have said the price at an airport is part of a pricing mix which enables the retailer to offer the best price it can to the customer across all locations. A change in price in one location will therefore offset another price elsewhere.

The airport retailing debate will continue with probably little change to prices but possible change to in store process, following Boots’ lead. The customer may understand the reason for price differentiation and be tolerant of it as long as there is transparency. Mobile use in retail gives the customer easy access to price comparisons between retailers and there is no reason that this shouldn’t be possible between locations using geo-location technology.

Retailers can also utilise geo-locations for marketing purposes. For instance, Morrison’s has completed a trial of location marketing to promote its fresh produce, targeting customers within a 5 mile radius of a store using geo-location technology. The results are reported to be excellent and open the way for a more location based marketing strategy and a way for retailers to compete by location with a message unique to them and beyond that of price.

Location has always been critical to a retailer’s success, being where the customer is when they want your product, and this remains the case. Customers will not stop making last minute holiday purchases at airports because they now know the reason for showing boarding passes, they always knew the prices would be higher there than elsewhere, but they may have second thoughts for a short time. But if one retailer changes its pricing strategy others will inevitably follow.


For help with your pricing strategy or marketing mix, give us a call.

BHS sale

Why fashion needs a rethink on the High Street

BHS sale

The assumption that recovering consumer confidence translates directly to recovering high street sales is now outdated. High Street like for like sales slipped again in July for the third consecutive month while bars and restaurants faired better. The old economic model no longer works.

Habits are hard to break and just because the consumer has a little more cash in their pocket at the end of the month doesn’t naturally flow that they will be spending it on the High Street. Fashion makes up a large percentage of high street spending and, as is often the case, the weather hasn’t helped summer sales this year, but the changing shopping behaviour we have seen in the grocery market is also working its way through to other markets and fashion is not immune.

Consumers know that at the end of the season retailers will mark down summer clothing. The problem is that the end of the season coincides with the weather starting to warm up and the start of the school summer holidays. Compound that with a typical British summer which is warm but rarely hot, often wet and sometimes just cold and it shouldn’t be a surprise that High Street fashion sales are weak.

Customer shopping behaviour is also shifting online and while most are offering ranges online, the seasons are still out of sync with the needs of the consumer.

The buying seasons are wrong. The principle of convenience shopping in grocery is that you can buy what you need when you need it. Translating that into fashion, buying summer clothes when you need it, means the customer will buy during the summer sales. If summer fashions were launched later, just before the point that those fashions are to be worn, retailers would benefit from more profitable sales, customers would benefit from better availability.

Some retailers have benefited from the changes in grocery shopping behaviour over the last 5 years, and there will be early movers in fashion who will also benefit in the long run but any shift in buying pattern will have to be coupled with another compelling reason to buy if it is to compete with other retailers in sales mode.

The question is who will rise to the challenge? Perhaps Next which is already very clear in its promotional calendar? Perhaps a discount retailer like Primark that has strong pricing all year round? Perhaps a dark horse bubbling under the radar with less to lose like PEP&Co? Time will tell but not before another few months of sales decline we predict.