If more proof were needed that UK shoppers are becoming frugal, then last week’s announcement from Morrisons that sales increased 7.6% in the first half of the year following a 7% increase in the first quarter just about validates reports of changing consumer patterns, with more people turning to value-driven grocers.
The fourth-largest retailer said last week that it was its “price-crunching deals” that helped bring in half a million more customers every week as hard-pressed shoppers look to cut down their spending. But it is not only Morrisons thanking bargain-hungry shoppers for growth in sales: discount chains including the German-owned Aldi, Netto and Lidl continue to lure shoppers to its tills. According to a latest report from TNS Worldpanel, the combined market share of the three rose to 6.1% in the 12 weeks to August 10, its highest to date.
Prompted by fears of losing their business to these discount chains, the big four, including giants Tesco and Asda, have been in a price war since April, with a series of “inflation-busting” discounts.
However, retail experts are not convinced that supermarkets are trying to protect consumers from price inflation and point out that these price promotions are nothing more than an “astute” use of marketing spend.
Retail analyst Richard Perks says that the last “real” price war was way back in 1977 when Tesco launched a controversial tactic dubbed Operation Checkout, in which it cut prices across the board to increase sales andmarketing share when consumerswere spending less money. Its market share rose from 7% to 12% in the span of a year.
Meanwhile, if Morrisons can offer to feed a family of four for £4 or Sainsbury’s can “feed a family for £5”, Marks & Spencer also cannot afford to be left behind in the intensive supermarket price wars. It has been promising a £10 meal deal for two, including wine and a dessert.
“M&S’s campaign was the starting point of these price wars – and a very successful one as well – when it realised that it was beginning to suffer as consumers were trading down. Others have inevitably copied it,” adds Perks.
Seymour Price analyst Freddie George says that all “smart retailers” will continue to launch a string of promotional campaigns, even if these have a negative impact on profitability. “But the problem is that special offers are becoming commonplace and retailers now have to be inventive while offering value for money,” says Brian Roberts from Planet Retail.
Experts are, however, convinced that the move to discount retailers will be short-lived. George says that the hard times confronting retailers is not going to last forever and adds: ‘This is only a temporary shift, and we’ve been here before when consumers are cutting spending and trading down. But people will want the range, comfort and convenience of shopping – something that is almost missing at discount retailers. At Aldi, for instance, you still cannot use a credit card.”
Both Perks and George say that German chains have grown with the likes of Aldi since World War II and, therefore, there is no stigma in shopping at discount chains.
“I don’t think there will ever be BMWs lined up outside an Aldi in the UK, like there are in Germany. Here it is the savvy shopper that is attracted to Aldi and Lidl to top its weekly shop, just as the poorest people continue to go to Iceland.” says Perks.