The perceived wisdom from the early Nineties is that supermarkets compete for their customers on the basis of price alone. Asda, for example, has based its recovery on a reputation for ferocious cutting of prices.
The truth may be more subtle than that. A recent survey by property consultant Healey & Baker asked over 1,000 British shoppers about their attitude and behaviour to the weekly shopping trip. The survey focused on grocery expenditure – a market that is worth 60bn a year at today’s prices. It found startling evidence that price competition is not the sole answer to increasing market share. Almost half of shoppers say they do not visit the supermarket they believe to offer the cheapest prices.
If almost half the people are looking for something other than cheap food, then what is it that pushes them into choosing their favoured supermarket chain? From the survey, it would appear that these price insensitive people choose their favourite supermarket on the basis of two equally important factors.
Firstly, they want the widest possible range of products. If you can’t buy it then you don’t care what price it is. Secondly, they are looking for convenience – how easy it is to get to the store, park, load up and get home. Further evidence is in the attitudes of those who shop at the two biggest chains. Only 36 per cent of people shopping at Tesco regularly said that they do so because they believed it offered the best prices. The figure for Sainsbury’s was even lower, at 30 per cent.
That so many rate value, quality and service above price may come as a shock to the uninitiated, but supermarkets have known it for some time. The past 30 years have been about expanding service and product ranges. If you can remember shopping for groceries in the Sixties you will know what I mean.
Some pundits even relegate the early Nineties price wars to a temporary and unimportant blip in the history of grocery, but that might be taking it too far. The big chains know that you win many long-term customers on the basis of convenience and better, more personalised service. Loyalty cards, extended trading hours, town centre locations, petrol stations, convenience store formats are all new weapons on the same battleground. One of the biggest may be just around the corner – home shopping.
Providing delivery and pre-ordering services is a natural progression for the big chains. If done properly, pre-ordering offers the shopper maximum convenience. If taken up extensively, it offers the retailer the chance to dislodge market share from their competitors and seal existing customer loyalty. Most of the big names are testing home delivery and collection services right now. Tesco runs an electronic ordering service called Tesco Direct on the Internet, which ties into its Osterley store. Anyone within the catchment of the Osterley store can order from the full range on the Internet and, for 5, have it delivered to their front door. Sainsbury’s is testing an order and collect service from Watford and Solihull and expects to expand this to six further stores. For an extra 2 you can phone in your order and arrange for it to be waiting for you to pick it up. Safeway, Iceland and others are testing similar schemes.
The potential market is huge – 8.5bn according to estimates from the Healey & Baker survey. That is 16 per cent of the country’s total grocery spend. Home delivery is not a new concept, as there have been milk deliveries for some time. What is different, and will define successful home shopping schemes, is that supermarkets can now offer full product ranges. So, the trip to the supermarket becomes optional rather than mandatory.
Initially it is likely to appeal to those with little time, but who can afford the small premium charge. Families and high earners are particularly keen. One in five of all shoppers are interested in taking advantage of pre-order services. The higher your earnings, the more likely you are to be interested. Over 31 per cent of those earning over 35,000 said that they would use a pre-ordering system.
But it not just about yuppies who cannot be bothered to go to the supermarket. For example, there is a market here for those who don’t have access to a car. In one fell swoop those excluded from visiting out-of-town stores can be brought back into the fold.
The size of the market alone could be enough to tempt the chains into offering pre-order services nationwide. Another (and perhaps stronger) draw is that delivery services cement customer loyalty and provide detailed information on individual shopping patterns.
Imagine a future where everybody has their own personal shopping consultant. Together the shopper and store build up ordering profiles for weekly, monthly and quarterly deliveries. All this information is held on disk. A quick phone call or Internet visit allows you to add something extra to the delivery. Very quickly, a bond will develop between retailer and shopper, both tied together in a long-term relationship. And, as part of the process, the retailer builds up a consumer profile database hitherto undreamt of. Direct targeted marketing to the individual consumer becomes a viable reality.