post christmas trading analysis – worst year ever, so now what?
Who were the winners and losers in the UK Grocery sector this Christmas? Were there any surprises? And what does this mean for 2020?
As the sun sets on another Christmas trading period, sales teams and strategists ponder of what went wrong and who won out over all. Perhaps the most surprising thing was just how tough it was for the grocers. The BRC headline stating it was the worst Christmas for retail on record was sobering to say the least. With 0% like for like growth for December in food and an overall decline in the retail industry, 2020 is off to a tough start.
A discount Christmas
Economic uncertainty played directly into the hands of the discounters:
Matthew Nobbs: “Lidl leads with a stellar performance of 10.3% growth in what has been called a tough Christmas. The combination of strong wine & general merchandise sales, a punchy promotional proposition and a high impact “Big On the Big Shop” marketing campaign propelled the retailer to deserve the No. 1 position amongst the Bricks and Mortar retailers.
Aldi sales grew 5.9% with its tried and tested Kevin the Carrot Christmas campaign and massive sales of its premium Specially Selected range. Strong, but are Aldi stores reaching their sales saturation point? In 2020, new stores will continue to drive overall sales.
The two retailers now enjoy a 13.7% market share which is incredible when one considers Lidl is only now enjoying its 25th anniversary in the UK! Amazing.”
Christine Cross: “One surprise for me was that Lidl performed better than Aldi when I had predicted the opposite. I visited group of Lidl stores (Gloucester and Worcester is not their heartland, granted) but they were not patch on Aldi, though they were marginally cheaper for of a basket of 12 items.”
The Big Four fight back?
Performance was mixed across the Big Four retailers, but there does appear to be a fight back in the traditional grocery heartland.
James Taylor: “The discounters moves into online trading and capturing more of the middle income bracket customers sends out a threat to all the big four, of which Asda and Morrisons will be under the greatest stress with a decline of -2.2% and -2.9% respectively. However, it’s worth noting that the combined market share of Aldi and Lidl is less than that of Sainsburys and TESCO both of which held strong with a less than 1% sales decline (-0.4% and -0.9%). This can be attributed to focusing promotional marketing on discounted seasonal vegetables to prices that rivalled their discounters and maintaining product availability right up to the Christmas eve. With their large market shares maintained this should be a good sign to investors that the two leaders intend to fight back.”
Matthew Nobbs: “Sainsbury’s sales momentum continued as predicted, but toy sales at the retailer suffered affecting the overall customer proposition. Looking at Asda with overall sales down -2.2%, I’m sure when analysts dig down into the detail, a core customer base switching to Lidl and Aldi will be their number one challenge. What can Asda do to turn the tide? Finally, I would suggest that Morrison’s performance dip will be partly down to its promotional plan of cutting down on Black Friday to “save” rather than trade. This looks to be a costly error on overall performance.”
An M&S renaissance ?
With trouble brewing in M&S, their food sales looked to be a highlight over Christmas.
Matthew Nobbs: “Looking at the M&S Food business in isolation, 1.4% like for like growth in a really tough market is excellent. My expectation was confirmed. There is a great Senior management team in place at M&S with diverse retail DNA and pedigree from Tesco to Aldi, combine this with the execution in stores of new lower pricing, new ranges and strong merchandising was great. This is a story to watch unfold during the M&S turnaround.”
James Taylor: “Marks and Spencer’s performance in grocery was a surprise. I expected a growth, but their sales increased in December was impressive given the market backdrop. It shows that there is still a demand for high quality food, it’s likely that they stole some of the traditional Waitrose customer base (who reported a decline of 0.9%) by focusing on quality products, high customer service levels and maintaining shelf availability. Based on this there is a strong possibility that Marks and Spencer’s food only stores will be one of the biggest contenders for the premium market over the next few years.”
Predictions for 2020
Christine Cross – What does the future hold for UK grocery this year? We really need to include Europe where Agecore are disrupting trade.
Last year was the year of consolidation through mergers and buying groups and while that drove prices down, it drove margins down too as price savings were passed through to consumers
All the grocers need to think hard about the logistics of home delivery to customers as the message from consumers is stark:
sell it cheap and we’ll come to you
make it convenient home delivery and we’ll spend more in absolute terms and per item
and by the way we want you to demonstrate your credentials in terms of sustainability and looking after the workforce as well as the environment
Retail net margins are now wafer thin, (compare them with FMCG), and with the national min wage set to rise again, it’s time to relook at the model.
Overall, I think there will be more consolidation, but I don’t think that buying groups will provide an effective solution. Morrisons, J Sainsbury’s and Asda all have to do something to improve sales and on the management side, Tesco and Waitrose have a complete changing of the guard this year. In terms of the discounters, Aldi and Lidl continue to build with the advantage of being able to put up new small low cost stores in areas of dense young population groups.
James Taylor – The Big Four need to demonstrate growth in the next year, even to a small extent, to reassure their investors that they are still in touch with their customer base. To do so there are three focus areas:
Convenience: Stores need to be closer to customers’ homes, places of work or commuting hubs. These stores need to deliver ready to eat hot and cold foods, meal component kits that make it easier for a customer to cook at home and the fridge and cupboard essentials (breads, milks, cheeses, fruits and veg etc.). This might require a greater investment in distribution.
Online: Most of the big 4 have existing infrastructure and systems to provide an online service to their customers that is competitive, but the challenge will be how to lock in the customer when new players appear and how to grow the basket of the existing base.
Value added services: With discounter’s promotional activity focusing on delivering a product of the same quality for a lower price it will be more important than ever for supermarkets to show they add additional value to a customer’s shop. Traditionally this was done through counter propositions and bakeries but there will be more pressure to increase in-store cafes, food to go propositions and strategic partnerships with other companies to drive additional appeal.
Matthew Nobbs – I visit all retailers each year to get a sense of the market, new products, in store execution and marketing. Like all those absorbed with retail, I look forward to watching the Christmas ads each year too. This year I would describe them as “Vanilla”- enjoyable, but predictable. So, what are the questions the Big 4 needs to ask in 2020?
Who is disrupting the marketplace with brave marketing?
Why is every square metre of space not being sweated with promotions or new concepts and initiatives?
Where are new initiatives and product services ready for Christmas launch?
Christmas is a retailer’s business card to a customer – a time a win or lose a customer forever.
Our panel:
Matthew Nobbs spent 22 years at Lidl before moving to Holland & Barrett, he has spent his whole career immersed in the grocery sector.
Christine Cross started her career at Tesco and is now an experienced FTSE NED, international multi channel retailer and buying director with a passion for the consumer.
James Taylor, managing consultant with Egremont Group has 10 years of global retailing experience across industry and consulting.
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