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Grocery Store Industry

7 September, 2017 Leave a comment

Grocery store industry insight from SBXL

Food retail and grocery shopping are changing in the UK. According to the Euromonitor International report, Grocery Retailers in the United Kingdom, published in February 2017, discounters were the standout channel with a current value growth of 11% in 2016. The growth was due to rising consumer price-sensitivity coupled with ongoing expansion in the leading players’ store networks. Luxury discounting was also a factor.

In the competition for the markets, Tesco continued to be a strong leader in grocery retailers with a 21% value share in 2016. Part of Tesco’s competitive edge came from having a presence in a number of channels. It led with a 24% share in convenience stores, 36% in supermarkets and 20% in hypermarkets along with its presence in forecourt retailers.

In spite of these strong figures, Tesco still felt the impact of discounters and online sales, losing a third of a percentage point in value share in overall grocery retailers in 2016. In response, underperforming stores were closed, the outlet volume in supermarkets being cut 4%. Some of its value share loss resulted from price cuts, as the price of goods in a typical customer basket dropped by 6% between September 2014 and 2016.

The report predicted that the two channels expected to achieve significant value growth at constant 2016 prices were convenience stores and discounters. This is no surprise, echoing long-term trends. It’s back to the price-sensitive consumer heading to the discounters for their main shop and relying on convenience outlets for top-up shops.

Quality and the luxury discounting attracted mid- to high-income consumers to Aldi and Lidl, both of whom plan to continue the expansion of store networks. Discounters are the only channel in grocery retailers to see outlet volume growth. This is despite the weak pound sterling in the forecast period. The explanation for this resiliency is their focus on locally sourced products and their lean supply chain.

The economic recession and growing inflation has impacted consumer behaviour causing them to turn toward cheaper alternatives and discounter stores. Supermarkets reacted through price wars whereby prices were competitively lowered. Lower prices yielded the highest share of food volume sales on promotion in Europe.

The grocery retail market has been, and still is, volatile. In January 2017, Aldi leapt into place as the fifth largest supermarket in the United Kingdom, with continued growth and success.

I’m Phillip Adcock and my team at SBXL have spent more than 20 years studying the dynamics of the grocery industry. If you have any questions about the industry and the way that people shop, contact us via email info@sbxl.com or call 01543 255 259.

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