Jan
26
Survival of the fittest
2010 | Filed under Perspective-Analysis | (0) 
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As 2010 dawns, there’s little evidence that the difficult economic circumstances of the last year will soon abate, and according to Julie Sloan, price will continue to be a primary motivating factor. The hard discounters are here to say, she says, but the convenience store format is well placed to enjoy a golden age…
The retail arena in Northern Ireland is dynamic and it’s changing fast. The market is also incredibly competitive as a result of the expanding presence of Tesco Express stores and the hard discounters.
For years, convenience retailing changed little while the food retailing market leaders concentrated on developing superstores to serve the primary weekly shop. But in the last 10 years or so, those same market leaders have turned their attention to the convenience model and developed formats that serve consumers far better. It’s now increasingly clear that there are a variety of different types of locations for convenience stores and each requires a different type of outlet. And there is also a blurring of boundaries as convenience stores add coffee, hot foods, fresh salad and premium chilled foods.
As tough times continue to stretch consumers’ household budgets, bargain-hunting at the local hard discounter has become more attractive to Ulster shoppers. Mintel’s 2009 research showed that 12 per cent of Northern Irish consumers in 2009 regularly shopped at the no-frills operator, Lidl - much lower in fact than in the Republic of Ireland, where one third of consumers shop at Aldi or Lidl. Mintel’s data show that 34 per cent of southern consumers and 17 per cent of northern consumers “shop more at discount retailers” as a result of the recession.
In Germany, hard discounters (of which Aldi and Lidl are easily the largest) account for approaching 40 per cent of all food retailers’ sales. In the UK, they take just 3.5 per cent (rising to an estimated five per cent in Northern Ireland). And that’s not for want of trying - Lidl has more than 500 stores, Aldi has just short of 400 and Netto just under 200 outlets. Lidl first entered the Irish marketplace in 1998, with the opening of its Cookstown store. The company now has approximately 130 stores and 2,500 employees across the island of Ireland.
Since entering the Irish market, Lidl and Aldi’s ranges have evolved in new directions, such as home-grown, fresh, premium and ethnic ranges. No-one knows if they make a profit or not as all of them are obsessively secretive. All are private companies and so are able to take a long-term view. Reports suggest that in 2008, they performed very well as incomes were squeezed and consumers were trading down. But TNS data for 2009 shows them making no further progress. In the difficult times we expect for 2010 and 2011, they should again gain market share - but will they retain it?
VALUE?
According to Mintel’s consumer research almost everyone agrees that these outlets offer good value, but consumers are evenly divided on whether they represent better value than the entry level ranges in the supermarkets. There’s a significant minority (40 per cent) that thinks it’s worth paying more for a pleasant shopping experience, but that still leaves 60 per cent of consumers as possible customers.
So far so good, but why don’t they attract more customers? The answer lies in other questions asked. Whenever one asks people what they want from a store, two things always come out on top - competitive prices and convenience. For this latest report, 92 per cent of people said the store must be well stocked and 86 per cent said it must be convenient. The hard discounters fall down on both counts. They have just 1,000 lines, compared with 30,000 plus in a typical superstore. And shoppers at a hard discounter cannot buy their full weekly shop there, they need to go to the superstore as well.
In Northern Ireland and other regions in the UK, unlike Germany, there isn’t the willingness to devote the time and effort to visiting two different stores. People may do so in hard times in the interests of saving money, but it’s likely that when we come to the recovery, most will quickly revert to the convenience of doing all their shop in one go. It’s true that people like to shop around for bargains and some will seek out the discounter brands that represent best value. But the hard discount format is suited to consumers in recession and not to consumers seeking to improve their standard of living in a recovery.
AND SYMBOL VERSUS EXPRESS?
Too many small newsagents think they can revive their fortunes by just introducing a few groceries. But it isn’t as simple as that. The small convenience store has to provide compelling reasons for any customer not to get into the car and drive to the nearest superstore.
Location is their biggest advantage and they can capitalise on that with friendly service and long opening hours. They also have to raise their game - smart stores, fresh food, even a bake-off oven and fresh coffee all provide a strong reason to visit the stores. Small stores have to make the most of the opportunities available.
Consumer expectations of convenience stores are being raised by newcomers – Simply Food, Tesco Express. They have brought the standards, ranges and pricing of superstores to neighbourhood retailing and that’s a change that cannot be reversed. For too long, convenience stores worked on the assumption that what superstores did wasn’t very relevant. There have been groups that have responded and have been very successful, bringing a fresh new era of convenience retailing to the province– Spar, Centra, Supervalu are the obvious ones – but the entry of the newcomers has accelerated change.
Current initiatives by the established players include:
• better-constructed own-label ranges on a Good-Better-Best basis
• more emphasis on product innovation
• developing formats to help ever-smaller stores
• greater emphasis on logistics and technology, in particular the introduction of EPOS systems.
Retailing is free market economics in practice. Consumers choose to shop at the stores that best serve their needs. Shops that don’t meet those needs fail. Shops that fall short in some ways begin to lose customers; witness Asda in the 1980s and Sainsbury’s in the 1990s.
The convenience store should be so much more than just a shop for top-up groceries. It should be a source of immediate meal solutions and in the longer term we expect to see the distinctions between convenience stores and fast food outlets becoming ever more blurred.
There are two types of convenience store – those in high footfall areas, catering for lunchtime and take-home evening trade, and those in smaller neighbourhood centres where footfall is much lower.
While some convenience stores cannot beat the multiples at their own game, there is ample room for them to build on the values and attributes with which the local shop has long been associated, and which a global brand, by its very nature, cannot provide: that is personal interaction with customers, closeness to the community, and a more emotional connection. In an era marked by uncertainty and change, loyalty itself is under constant review.
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