SUPERMARKETS

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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.

Giant scanners which can add up a trolley full of shopping in one go are set to end supermarket check-out queues. Shoppers will simply push the trolley through a hi-tech beam which will automatically work out the bill removing the need for items to be unloaded at the checkout to be individually scanned. Instead, customers will put their goods into boxes on a trolley as they shop.

The checkout could even be unmanned once the system is up and running. If you're a regular shopper the bill will be automatically deducted from your credit or debit card. The whole new system will depend on every product on the supermarket shelf carrying a tiny silicone chip that gives off a radio signal identifying what it is, how much it costs, and whether it's part of any promotions such as two-for-the-price of one deals.

Store bosses believe the identity tags, a spin-off from defence technology developed for radar systems, could revolutionise shopping habits in the UK. US retailing giant Wal-Mart, who own Britain's Asda chain, are already using the chips in their US warehouses to keep track of stock and company's including Marks & Spencer and Tesco are trying out RFID pilot schemes. The technology to bypass check-out queues could threaten the jobs of thousands of staff, but stores say they would redeploy employees in other areas.

A supermarkets price war has been shown as a sham, with highly publicised cuts on products being outweighed by rises. A survey of 12,000 items sold by Britain's biggest supermarkets group indicates a net increase in prices in nine of the first 12 weeks of the year. Tesco reduced the price of 2,983 items during the survey period, but the cost of 2,852 products were pushed up at the same time. The scale of the rises, coupled with the fact that they were applied to many big-selling items, meant the net effect was to push up the overall cost of shopping. Details emerged as Tesco unveiled record-breaking profits of more than £2bn for 2004.

Tesco insisted that it remains cheaper than its major rivals and that they adopt the same tactics. It said that while Asda cut prices on 2,451 products, it put increases on 2,004 over the same period. Similarly, while Sainsbury's introduced cuts on 2,395 items, it put up the cost of 2,975. Supermarkets boasted of a price war, claiming prices had been 'slashed'. But one in five products cut by Tesco in the first week, a total of 83 out of 413, went up again by the third week. Some 51 went back up to the original price and 22 were more expensive. For example, Tesco's Healthy Eating Caesar salad was cut from £1.79 to £1.29, but it then went up to £1.99.

David Rae, chief executive of the Association of Convenience Stores, which represents independent grocers, said, "It is all smoke and mirrors. The big supermarkets are not being directly dishonest, but rather they are very selective with the truth." Tesco spokesman Jon Church said, "There will be things that go up in price as a result of seasonal changes or cost increases. In our case, some products may go back up to their normal price after a lower promotional period." He added, "Any suggestion that the cost of shopping has got more expensive is just wrong." Asda said its 'rollback' campaign offers big reductions on particular items for 12 weeks. Prices do go up, but not to the original figure. Sainsbury's said, "We don't play pricing games." (Source: Mail on Sunday)

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