Why did the supermarkets ignore the discounters until it was too late?

Today we have published some research from analysis of supermarkets and discounters over the last 5 years. A lot has happened in the last five years both in terms of store numbers, impact of European discounters, new CEOs at 3 out of the top 4 supermarkets not to mention a recession and a consumer who is more fickle, astute, informed and unpredictable than ever before.

The supermarkets (less Asda who is owned by Walmart) have published some pretty poor (even shocking results) and Tesco is being investigated for accounting irregularities. Whatever the issue, it all stems with the fact that no longer do the big four dominate the daily/weekly shop. Of note in this research is that whilst the supermarkets price checked each other and continued to open stores the discounters, not considered material then, grew quickly and absorbed vast numbers of shoppers who felt disenfranchised by their traditional supermarket. Who could you trust on price? What were they doing to their suppliers in order to cut prices? Were the big four the reason that my high street was full of empty shops?

This report clearly shows why supermarkets are losing ground to the discounters and of particular significance is that growth of both the supermarkets and discounters has continued unabated for the last five years. As such it was only a matter of time when sales and profitability of the big four supermarkets would be impacted.

Add into the mix the growth of convenience stores by Tesco, Sainsburys and Morrisons then the issue is further compounded along with creating cannibalisation of existing supermarket stores by the same company’s convenience stores.

With the continued growth of discounters, supermarkets and convenience stores (+2,253 since 2010) then more pain lies ahead which is further compounded by the rise in food and beverage operators (+15,000 since 2010) who are responding to an increasing trend for consumers to eat out rather than eat in which will further impact supermarket sales.

In part 2 we will look at the Convenience Store market which further adds to the issue.

Below is a brief summary of the findings and the full report and data will be available to our subscribers. An article also appeared in the FT this morning that clearly shows the significance of these findings

Headline – Analysis of discounters versus supermarkets shows Morrisons to be the most targeted supermarket, with 49% of stores in above average discounter towns.

A new report published today by The Local Data Company looks at the growth of the supermarkets and the discounters from 2010 -2015. The report analyses growth by fascia and by town and identifies how and where the main stream supermarkets have seen growth in competition and thus loss of market share as the discounters have opened up around them.

Summary

  • Overall growth rate for supermarkets and discount stores across the towns was 5% (1,949 units)
  • Discounters opened 1,367 units at a growth rate of 48% in the 5 year period
  • Supermarkets added 582 units over the last 5 years at a growth rate of 34%
  • In 2014, discount stores growth was twice as fast as the big 4 supermarkets. With each discount store growing on average by 33 units compared to the big 4 supermarkets who grew by 16 units on average
  • Tesco has the most stores (40) in the fastest growing towns[1] in the last 5 years, with Sainsbury’s having the fewest (11).
  • Morrisons have the largest percentage (49%) of their stores in towns with above average number of discount and supermarket stores (GB average is 7,051 people per discount and supermarket unit)
  • Sainsbury’s and ASDA have the fewest stores in the densely populated towns (towns above the GB average of 7,052 people per town).
  • Scottish towns have the most competition with 82% of the towns analysed in Scotland (281 towns) having above average competition levels (areas with a high number of supermarket and discount stores compared to the population)
  • Queenborough in the South East had the highest density of stores (population to stores ratio) with 852 people per unit, compared to Shoreham-by-Sea that had the highest at 48,487 people per unit 
Supermarket Key Findings
Tesco Most number of stores in the fastest growing towns for discounters and supermarkets (40 stores)
ASDA Fewest number of stores in densely populated areas (35% of total stores)
Sainsbury’s Fewest number of stores in densely populated area (35% of total stores)
Morrisons Largest percentage of stores in densely populated store areas (49% of total stores)

Dr Clive Black, head of research for Shore Capital Markets commented:

“The Local Data Company has carried out fascinating work, which underscores its distinctive and highly valuable capabilities when considering the nitty-gritty of retailing in Great Britain.

Supermarkets have been subject to enormous structural changes and challenges and this work brings out a central component of the adjusting scene; the growth of the discounters.

Access to discounters is materially growing and with the Big Four supermarkets abandoning their store opening programmes with the exception of convenience stores, their relative rise is set to continue.

How the landscape will change towards 2020 will be fascinating to observe, noting as we do that the UK also has rapid population growth. It seems pretty certain that the discount channel will continue to gain share requiring ongoing work to make superstores and hypermarkets retain relevance.

‘Shopaphiles’ should move to Queenborough ‎in Kent, ‘Shopaphobes’, might want to try Shoreham-by-Sea’!”

So why did the supermarkets ignore the discounters until it was too late and have now created a serious commercial issue for all of their stores and their relationship with customers?

[1] Fastest growing towns- refers to the towns with the highest percentage of net change (Supermarkets and Discount store openings) over the last 5 years.

Click below to download the Supermarkets vs Discounters Report Summary

Supermarkets vs Discounters

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