We are in the midst of heavy competition between Britain’s retailers. There are more key players involved, whether it be the traditional ‘big six’, discounters such as Aldi and Lidl taking market share, or the rise of convenience stores. Each one attempting to entice customers from one another, and all this happening in an ever evolving market landscape.
It is clear to see the significant effect that this is having on the retail market. In the last month alone, both Tesco and Morrisons have announced store closures (interestingly 74 per cent of the 43 Tesco stores closing are within easy reach of an Aldi or Lidl), prompting Goldman Sachs to suggest supermarket groups must close one in five stores and that store closures are the 'only viable solution' for Tesco, Sainsbury's and Morrisons.
Return on investment is very much front of mind, and stores remaining open are facing a continued search to make more profit per square meter of store space. Sainsburys this week announced the introduction of Argos concessions in their stores to increase footfall, after admitting that 25 per cent of their retail space is wasted. Tesco have instigated a range review programme supported by dunnhumby and Boston Consulting Group to reduce in-store SKU counts and cut costs. Tesco and Sainsburys also both announced widespread head office and store staff cuts, Morrisons going as far as making their CEO Dalton Philips redundant.
These overhead reductions are being used to give retailers the ability to continue price cuts, which are becoming the new loyalty card initiatives. No longer are shoppers drawn in by the incentive of building up points for discounts on future purchases, that discount is now expected instantly. The knock on effect is that CPI annual inflation rate stood at 0.5% in December 2014 (down from 1.0% in November), and overall food prices are declining.
The focus on price cuts is making supermarkets and shoppers disengaged with one another. Our own data at Shopitize now shows that just 40 per cent of total supermarket purchases are currently being made using loyalty cards, and only 45 percent of us shop at just one retailer. Whereas a few years ago loyalty schemes such as Nectar and Clubcard helped supermarkets drive customer loyalty, the balance of power is now in the hands of the consumers. For brands though, this situation could be advantageous.
As supermarkets continue to focus on price, their previously loyal customers will be left in the cold. Until recently, brand marketing has been focused mainly on awareness combined with often very expensive joint campaigns with supermarkets. This scatter gun approach however means that while they get to communicate with their consumers, brands are also forced to compete with other companies selling totally different products for ad space and the best in-store shelf and promotional positioning. Also, do you really want to devalue your brand and give the same discount to all instead of tailoring offers to different shoppers?
The latest technology is changing the market, and allowing for personalised customer engagement at every point of the shopper path to purchase. This puts many FMCG brands on a relatively level playing field, but those that act on the opportunities are bound to end up as winners. For example, the success of pure advertising has been very difficult to trace, as without a trackable call to action, little is known about how successful each advert was in its specific location.
Including a call to action or incentive to download a mobile discount within an advert or relevant piece of digital media content allows the shopper journey to be tracked up until the moment they purchase your product. Brands can also see which advert or piece of content pushed that user to make a purchase, no matter which store or retailer a consumer chooses to buy from. The results; both financial savings by targeted marketing only towards profitable and relevant customers, and higher sales through positive conversations.
Continued price slashing and supermarkets focussing on winning greater market share should be spurring brands into action. The opportunity is significant, and ignoring it will allow competitors to sneak in and build relationships with your customers. Engagement with shoppers will increase your bottom line and ultimately allow for greater market expansion.
By Chris Newbery, Sales Director at Shopitize.
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