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Economics - Supermarkets

The UK grocery market is controlled by the supermarket multiples, virtually all of which are household names. The top five are Tesco, Sainsbury's, Safeway, Asda and Somerfield. In addition there are some more expensive supermarkets focusing on the 'quality' niche market, such as Waitrose (owned by the John Lewis Partnership) and Marks and Spencer and smaller or regional operations such as Budgens, Iceland, the Co-op or WM Morrison. At the cheap end are the German bulk discounters, Aldi and Lidl and the Danish chain, Netto that stock smaller ranges of mainly imported goods.

In 2000, food sales through supermarkets and superstores reached £76.78bn - a growth of 4.5% from 1999, and a growth of 30% since 1995. A report by industry analysts, Keynote, estimates that in value terms the retail sale of food through supermarkets will increase by 16% between 2001 and 2005. The major supermarket multiples currently control 88% of the market, with the remaining 12% divided equally between food co-ops and independent grocery stores. This concentration of retail power is far greater than the rest of the EU or the US markets. The profit margins of the big five are also higher, averaging about 6% in the UK, compared with about 2.5% in Europe and the US.

In Jan 2002, for the first time in years, Sainsbury out-performed Tesco over the Christmas period. Whilst some analysts saw this as a sign that Tesco was not invincible, it is clear from other analysts that Tesco is in a league of its own. "Tesco's strategy is far ahead of Sainsbury's - it has grown a strong UK core and then rapidly developed international stores, built good non-food sales, expanded into retailing services and exploited eCommerce successfully," said leading food analyst, Datamonitor. "As Europe's second biggest retailer, it is now comparing itself to international rivals such as Carrefour."

Since 1995, the strategies of the major chains have swung between intense price competition and loyalty schemes. However, Wal-Mart's entry into the UK through its acquisition of ASDA in 1999 has dictated new strategies. The Wal-Mart formula is based on low prices and a whole range of products besides food. In response, many supermarkets are also becoming entertainment centres, clothes stores, newsagents and petrol retailers. Retail analysts Verdict say that a massive £14.5bn was spent on non-food items in supermarkets in 2000 and that it is a potential growth area, especially for Asda and Tesco.

Supermarkets have also entered service areas such as insurance, banking, internet service provision and soon even divorce finalising and will-writing. In September 2001, tesco.com announced it was on the verge of profitability, but many consumers are still unconvinced by internet shopping, not wanting to rely on a third party to choose food, and not really knowing what they want until they enter the supermarket.

In November 2001, Sainsbury's released a story about lovers found kissing beside a chiller cabinet. In other supermarkets, there are reputed to be 'singles nights'. As Marketing online reveals, this is a concerted PR strategy to make supermarkets sexy, and combat the alienation that shoppers undoubtedly feel beneath the strip lights and endless aisles, overwhelmed by strangers, and shelves stacked high with products.

A new supermarket check-out is due to be launched across the country which relies on shoppers doing all the work themselves. The self-service check-outs allow the customer to scan items, put them in carrier bags, pay, and even get cash-back, all without the need for a cashier. The first of the check-outs have been installed at the Sainsbury's store in Hazel Grove, Stockport, Greater Manchester, and will be followed by a wider trial in six additional branches. The chain say if the concept is a success they will launch it across the country from later this year.

The Self Checkouts are already in use at the Sainsbury's-owned Shaw's chain of supermarkets in the US where they process more than one billion transactions a year. Customers fill up their basket or trolley in the normal way but when finished go to one of the special check-outs which is equipped with an interactive touch screen. They are asked to pass the barcode on the product over a scanner and then place it into a carrier bag situated on a set of scales. Fresh produce, such as fruit and vegetables, are weighed in advance and given a sticker with a barcode.

Every item in store has had its exact weight entered into a computer, allowing the check-out to tell exactly what has gone into the bag and cutting down any risk of theft, according to Sainsbury's. After all the groceries have been packed the customer can either pay with cash by inserting a note or debit or credit card. Sainbury's say only a small number of self-style check-outs will initially be installed and that the majority will remain the traditional version, complete with cashier. They must already realise that the majority of the British public would not be able to handle this one?


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