In September, the ONS (Office for National Statistics) confirmed that inflation for the past 12 months hit an eye-watering 10.1%. But unfortunately, this staggering figure hides an even more painful hit to the pockets of consumers, one which is driving a change in the current landscape of UK Supermarkets.
Pasta 59.9%.
Tea 46%
Bread 37.6%
Whilst the numbers above have the makings of a recipe gone wrong, they represent something worse – the cost increases over the past 12 months on some of our staple household items. Couple these with other increases hitting our bank balances (petrol, gas and electric to name but a few), and it is no wonder that people can no longer stick to their same shopping routines or keep up their brand loyalty. The biggest benefits of these lifestyle changes? Aldi and Lidl of course.
Market disruptors for many years, Aldi and Lidl can now fairly claim they are key players in the UK Supermarket sector. In September of 2022, Aldi grew its market share to 9.3%, knocking Morrisons (9.1%) out of the Top 4 UK Supermarkets for the first time. Given the current economic climate, this change (and the concurrent reduction of market share for the likes of Tesco, Sainsbury’s, Asda, and Waitrose over the past 12 months) is hardly surprising. What is more unclear however is whether this is merely a short-term shift or a permanent change in the landscape that has been brewing for some time.
A good indicator is the events that occurred after the financial crisis in 2008. The collapse of high-profile retailers such as Woolworths during and in the years following the recession, paved the way for the likes of Poundland and Home Bargains to become household names. Yet, despite post-recession inflation falling and the economy improving, these retailers still have a strong foothold in the retail market. These changes have been reflected in the supermarket sector, where Aldi and Lidl still exhibited the biggest post-recession growth share, despite more favourable economic conditions.
So, what does this mean for the former ‘big 4’ and the supermarket sector? It would seem the balance of price vs loyalty has potentially shifted irreversibly and that consumers are now focussing on their pennies rather than points. You need only to look at Tesco’s ‘Clubcard Prices’ initiative, offering deep discounts to its loyalty card holders to see that earning vouchers for days out is no longer the Clubcard’s focus. Even Waitrose, the ‘high-end’ offer of UK Supermarkets has switched its myWaitrose offer away from free newspapers and coffees to reduced prices on key products. With price now being King, the continuing rise of Aldi and Lidl was inevitable and for now, seems irreversible.
Unless other UK Supermarkets can continue to try competing on price (and change their perception versus discount retailers) we are likely witnessing a permanent shift in the supermarket sector. No longer the ‘big 4’, now the ‘sizeable 6’?
At 4C Associates, we have extensive experience supporting clients and working for a broad spectrum of retailers. We focus on end–to–end cost management, category management and range optimisation, and supplier management – paying particular attention to the principles of GSCOP where applicable. To find out more, please contact Simon Latham (Simon.latham@4cassociates.com), or Daniel Walsh (Daniel.walsh@4cassociates.com).
