British supermarkets claim competitive prices but consumers think otherwise
2023.02.22 02:30
British supermarkets claim competitive prices but consumers think otherwise
By Tiffany Smith
Budrigannews.com – Despite the fact that the big supermarkets in Britain claim to be more price-competitive than ever before, their customers are still flocking to Aldi and Lidl, discount stores owned by Germany.
Industry executives assert that the supermarket sweep by discounters still has a long way to go, with Aldi UK CEO Giles Hurley promising Britain’s lowest prices “no matter what.”
That is putting pressure on the major players in Britain, including Tesco (OTC:), Sainsbury’s, Asda, and Morrisons – to cut costs even more so they can keep prices down and keep customers who are struggling financially.
“Shoppers switched 58 million pounds ($70 million) (of purchases) from Tesco and Sainsbury’s to Lidl over the Christmas period alone,” Lidl GB CEO Ryan McDonnell told Reuters.
“That doesn’t just come from people going to new stores.”
Aldi’s and Lidl’s December sales increased by 26% and 25%, respectively, luring customers from all traditional demographics, making the discounters the big winners over the holiday season.
Analysts, academics, and grocery executives anticipate that the German duo’s combined share of the British market will double within a decade as they invest hundreds of millions of pounds in expansion.
Aldi intends to open 1,200 UK stores by 2025, up from 990 at the present time, and Lidl intends to open 1,100, up from over 950.
The relative newcomers, both of which are present in more than 30 countries, including the United States, where Aldi in particular is flourishing, are so large that Britain’s incumbents are having trouble competing.
Because they are privately owned and do not have to worry about shareholder returns or stock prices, the discounters are also able to take a longer-term view on profit because their size guarantees better terms when negotiating deals with suppliers.
In countries like Germany, Poland, Denmark, and Norway, discounters control more than a third of the supermarket market, and the British shopping landscape is likely to follow suit.
According to Reuters, Leigh Sparks, a professor of retail studies at the University of Stirling in Scotland, “The UK will model itself after what many of the European countries have.”
According to Kantar, a researcher, Aldi UK, which is owned by Aldi Sud, has a 9.2% market share, making it the fourth largest grocery store in Britain. Lidl, which is part of the Schwarz Group, is the sixth largest, with a 7.1% market share.
As a response, Tesco and Sainsbury’s have eliminated in-store deli, fish, and meat counters and replaced a large number of check-out employees with various forms of automation.
This is a reflection of the lessons learned during the financial crisis of 2008, when Aldi and Lidl were able to establish a foothold in Britain by keeping prices much lower on their 2,000 mostly own-brand products, compared to 30,000-40,000 at the big supermarkets.
This time, the traditional players are fighting back, with food price inflation exceeding 15% and Britain on the verge of recession. While the cost hole with the discounters stays material – at 14-18% for a 45 thing shopping container as per Which? – In recent years, it has become smaller.
In order to keep prices low, Tesco and Sainsbury’s are now matching Aldi’s prices on hundreds of essential items and using customer loyalty programs.
Last month, Tesco CEO Ken Murphy stated, “We’re in the strongest value position we have been in for many, many years.” On the other hand, Sainsbury’s CEO Simon Roberts stated that the company was increasing prices less than all of its key competitors.
Some investors believe that Tesco and Sainsbury’s, with dividend yields of nearly 5%, are solid investments and that the traditional players have suffered the most.
A top-50 shareholder of both companies stated, “They’re paying attractive dividends, they’re much simpler businesses than they were, and they’re very cash generative, that is the attraction.”
RE-BASING?
On the condition of anonymity, executives in the sector stated that Aldi and Lidl’s further expansion is unstoppable.
One industry veteran told Reuters, “The only question is who cedes the share and at what point does that become problematic for one or some of the players.”
“Due to the fact that the amount of space being put down is greater than the increase in demand, there will eventually end up being some form of industry re-basing or consolidation.”
Bestway, the owner of Costcutter, owns a 4.5 percent stake in Sainsbury’s but denies planning a takeover. 14.3% are owned by Qatar’s sovereign wealth fund.
While Britain’s competition authorities stopped Sainsbury from acquiring Asda in 2019, the situation has changed now, with Aldi outperforming Morrisons, according to Kantar.
The industry veteran stated, “Nobody’s going to take Tesco out, but at some point somebody might take Sainsbury’s out.”
