The biggest challenge currently for this industry is the marketplace itself. Retailers are having a tough time as the traditional top 4, Tesco, Asda, Morrisons and Sainsbury’s fight it out with the discounters who have different agendas and different expectations to live up to. If a customer doesn’t find a product in Aldi they accept this as normal, that it may have been a one off product. However, if their normal product is not available in a Tesco, they feel let down by the retailer and their loyalty is questioned. On top of this, the customer is now far more demanding, expecting cheap prices, choice and availability. It’s a challenging environment to succeed in.
The top 4 have responded to the pressure from discount retailers by starting a price cutting war. This week, Asda said it would plow £300m into lowering the price of essentials and that’s just the beginning. But it does raise the question of whether it’s worth slashing profits in a battle with discount stores. Will price really prevail in the long run over quality, convenience and loyalty?
2015 will continue to be a year of change as the discounters gain share and the higher end retailers such as Waitrose also continue to grow, creating more of a squeeze on the middle ground than there has ever been. Range rationalisation is said to be a key strategy for Tesco in particular next year, enabling them to simplify both their supply chain and their stores to maintain better availability across a clear and concise range. Needless to say, 2014 was not Tesco’s best year, and there could be more to come, but it’s important to remember that regardless of Tesco’s turnover (£7.6b in the 12 weeks ending 7th DEC according to Kantar World panel) it also owns 29% of the marketplace so their influence and importance should not be underestimated or forgotten.
The good news for brands is that by having the best in store support from people who drive a brands presence, distribution, and availability these challenges can be overcome. The people in store who have the relationships across the store and can make long term systemic change because of the knowledge of store systems.