Supermarkets in the UK are struggling to carve out a niche in the market as competition grows and consumer expectations change. More discounters are coming into play, offering lower prices without the added frills, and threatening the sales of traditional retailers.
As we delve deeper into the holiday season, many retailers hope sales will be boosted by extra grocery spending. British consumers are expected to spend $31 billion on groceries over the holidays, a 1.4% increase compared to 2014, according to research group IGD. Almost 20% expect to spend more on food and drink for Christmas than they did last year, which could be good news for supermarket operators.
However, UK grocery store sales only increased 0.1% in the year ending Dec. 6, 2015, according to Kantar Worldpanel, and even though spending is expected to rise for the holidays, supermarkets are lowering prices, with costs of groceries falling 1.9% in December.
Tesco and Asda had trouble competing with the discount chains this year, as their sales fell 3.4%. On the bright side, their online sales did increase, possibly because discounters are slower to compete in this area. Morrisons also saw revenues fall 2% after selling its M Local convenience stores.
Aldi and Lidl continue to hold their combined 10% market share, and experienced sales increases of 15.4% and 17.9% respectively year-on-year, but Sainsbury's is the real market leader with a 16.7% share of the market. Its sales increased 1.2%, with its premium product offerings gaining ground. These numbers show that the supermarkets at the most risk for losses are those that fall somewhere in the middle of the spectrum, with discounters continually gaining ground and premium products also remaining popular. The larger, more traditional stores, like Tesco and Asda, may need to adjust their models to cut down their offerings and compete with the likes of Aldi and Lidl, or turn to a more high-end clientele to gain back market share from Sainsbury's.
It also seems the larger stores may need to compete with discounters on more than just price. What attracts shoppers to Aldi and Lidl is partially the simplicity, according to research from Siegel+Gale. Sixty-nine percent of consumers say they are more likely to recommend a brand because it is simple, and would even pay more for a simple experience. In 2015, Aldi and Lidl were at the top of Siegel+Gale's Global Brand Simplicity Index list of the world's simplest brands for the third year in a row.
In order to turn things around and keep their market share, traditional retailers will really need to take a look at what consumers want in 2016, and make a decision on how to adapt to the changing retail landscape.