Retail: Consumers Spoilt For Choice

The study predicts that the next five years will be an even harder battle in securing consumer spend as no one chain has a hold over the majority of customers.

All of the big four supermarket players (Tesco, Sainsbury’s, Asda and Morrisons) share well over eight out of ten of their regular customers with other food stores: none manage to persuade anywhere near a majority of their shoppers to buy from them alone.

And Verdict says that despite the growth of the main grocery players over the past five years, customer sharing numbers remain virtually unchanged, showing that customer choice has not been diluted and that people are still able to shop around.

According to the research, far from suffering from a lack of competition, the grocery sector and the players within it face an increasingly hard battle to win over customers. “There is a common belief that because food retail has a number of very large, dominant players consumer choice is somehow stifled,” said Verdict’s director of consulting, Neil Saunders. “In truth, it isn’t – the biggest battle grocery retailers face is how to hold onto increasingly fickle customers who are able to transfer their custom elsewhere.”

Verdict’s data shows that six out of ten food shoppers make regular use of a food retailer other than the big four supermarkets. The consultancy claimed old models of assessing competition on a local basis were no longer relevant, as shoppers increasing visited stores when they were on the move to and from work. And the expansion of internet shopping is giving them access to food retailers they might find it hard to get to by conventional means.

Verdict added, “Compared to five years ago, all four of the multiple supermarkets are strategically stronger and will increasingly fight each other for market share. Back then, Sainsbury and Morrisons were both much weaker than they are today.

“Both were focused on sorting out internal issues rather than on actively growing their market share. That has now changed: both retailers are fully focused on trying to attract new customers and that, ultimately, means a much more competitive environment.”

The report also claims that the growing interest in ethical and environmentally sound produce and food provenance will help fuel the growth of alternative players such as farmers’ markets and food box delivery schemes.

Verdict concludes that, as a result of the increasingly competitive nature of the market, there is no evidence that any one player could dominate the grocery market over the medium-term.

“People seem to be increasingly worried that Tesco, as the leading player, could attain a monopoly position in the market, but the hard facts behind that contention just don’t stack up,” said Mr Saunders.“Tesco may have the largest market share but it certainly doesn’t have a monopoly on customers and there is virtually nothing they can do to compel people to shop with them.”

Verdict’s data shows that over the past ten years Tesco has increased its share of the food and grocery market by 9.9 percentage points. Even if that performance was to be repeated over the next ten years it would still only leave Tesco with a 35% market share, which is far from a monopoly position, the company said.

Mr Saunders concluded, “What we must avoid, at all costs, is big grocery retailers being victimised for their ability. The major grocers are not big because they have some mystical power over the market; they are big because they excel at what they do. And from our analysis it is very clear that they will need to keep excelling if they are to maintain their leading positions.”