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The decline of the Big Four?

24 July 2015

In April, Tesco announced a record £6.4 billion loss for its results, which was swiftly followed by the slightly more surprising news that Sainsbury’s was announcing its first financial loss in a decade. The downturn facing the supermarket giants today is hardly big news anymore. With this trend continuing, Noreen Kinsey, Head of Shopper Insight at Future Thinking considers what this could mean for the industry.

While there are a number of factors responsible for this decline, one major influence has been the rise of the discount supermarkets, such as Aldi and Lidl, whose meteoric rise shows no signs of slowing. Discount supermarkets are opening new stores at a staggering rate, with more than five new stores per week. In 2014, Aldi and Lidl experienced growth that was twice as fast as the Big Four supermarkets. The discounters are multiplying rapidly, while the Big Four are either stagnating or closing their own stores.

Future Thinking recently conducted a Shopper Barometer study, which found that the discount retailers are growing in popularity, with 63% of the UK population now using a discounter for at least some items, compared to 58% in 2014. And Aldi has now overtaken Waitrose to become the sixth largest supermarket chain with a 5.35% share of the market, with Lidl currently at 3.7%. And perhaps more interestingly, 26% shop at Poundland on a monthly basis, further suggesting that ‘luxury’, non-discount supermarkets are beginning to fall out of favour for at least some of our shopping needs. 

Aldi will certainly continue to grow, as they plan to open 70 new stores in 2015, including its largest store to date in Louth, which will be up to 20% larger than most of its current stores. This is a particularly note-worthy initiative from the retailer as it flies in the face of the trend of the Big Four moving away from larger store footprints. It remains to be seen whether Aldi’s move will pay dividends.

Can discounters win over everyone?
The key factors for those shopping at discount supermarkets are savings combined with quality. But with only 10% of shoppers using discounters for their main shop, most consumers rely on them to cherry-pick specific items. Despite their rising popularity and rapid growth, discount stores are yet to win over everybody. Respondents indicated that 11% would never consider using discounters for grocery shopping, mainly because they are happy with the store they currently use (42%). Furthermore, 37% say that they do not stock the brands they use and 32% do not trust the quality of the products. Less than a quarter of those considering discounters would buy across all categories. There is clearly still a stigma attached to the products sold in discount stores; however discounters have responded with increased messaging, promising better quality and greater product range.

There is still a negative perception surrounding online shopping as well, with only 13% of respondents regularly shopping online. This would suggest that on the whole, shoppers want to have complete control over their shopping, either because they aren’t able to match prices from a discount store or because fresh goods are selected by a store employee. Quality is prized above all else.

Shoppers use discounters to save money, with many still feeling the strain financially and 89% of consumers taking steps over the past year to save money. Furthermore, 29% of consumers compare flyers and leaflets for the best deals, although this number is falling, compared to 41% in 2014.

The Shopper Barometer clearly shows that discounters lead on price, but currently suffer on brand and in-store experience metrics. Therefore, it would seem that whilst discount supermarkets are currently extremely popular and growing rapidly, shoppers have turned to these stores in a time of economic need, changing their shopping results as a result. Convenience, range of product and quality of product are still important factors for shoppers, but these are now balanced against shopping budgets and shoppers changing austerity induced behaviours as they look for the best deal.

It will be interested to see whether shoppers will return to the Big Four as the economy recovers.

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