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The £4billion grocery rollover

Newton reveals £4billion in untapped operational-improvement cost-savings currently sitting within the grocery industry

12 July 2017: Retail consultancy Newton today launches its new report entitled ‘Beating the Discounters’, which examines how the multiples such as Asda, Tesco, Sainsbury’s and Morrisons, also known as the ‘Big Four’, can regain market share back from the discounters. The report found that even with many switching to discount retailers, the ‘Big Four’ supermarkets have a significant opportunity to fight back.

In its report, Newton reveals that by making improvements that are attainable within less than 12 months, there is £4billion* in untapped operational-improvement cost-savings currently sitting within the grocery industry. By promoting existing differentiators, such as product range and customer service, and by simply managing stock replenishment more closely, the multiples can get shoppers back through the door. Newton proposes that by reinvesting these savings into the 1500 overlapping products that sit across the discounters and multiples, the ‘Big Four’ can reduce the cost of these items to match cheaper rivals in a cost-effective manner.

Whilst the positive perception of the European discounters is rising, with Aldi and Lidl recently named the UK’s top brands, the report also documents that there’s a huge gap between shopper’s perception of the discounters and the reality.

In fact, research showed that only 34% of shoppers prioritise price as the most important aspect when picking a grocery store, ranking it the fourth-biggest driver behind the choice of retailer. The report found that the most important motivators to a shopper are location, range and habit which, according to the Newton report, the multiples are already delivering on.

With almost 3,500 Tesco stores, compared to 630 Aldi stores in the UK, the discounters have a long battle ahead to win ground on convenience. However, even with convenience still being important to consumers, 94% of customers who shop at a discounter also shop at a multiple. Whilst this is hardly the picture of convenience, it indicates shoppers still aren’t fully satisfied with the range, giving multiples an even bigger opportunity to win back the hearts and minds of shoppers.

Paul Harvey, head of grocery at Newton, comments:

“Over many years of helping some of the UK’s most successful retail organisations, we’ve observed that the perception of the discounters doesn’t always match reality. By ‘myth busting’ this perception, promoting the areas the multiples are already excelling in and by making some crucial, but quick changes that maintain customer services whilst reducing cost, we believe the whole retail landscape could be thrown on its head before the end of the year.

“The multiples’ persistent focus on price is perhaps behind the warped view that this is the biggest driver behind their loss in market share. For an average multiple to reduce prices on an entire range, down to the level of the cheapest discounter, would result in a profit hit of approximately £1billion.”

Justin King CBE, former CEO of Sainsbury’s, comments on how leading a step change can create results:

“Back in 2004, the consensus view was that after 10 years of losing market share there was only one direction of travel for Sainsbury’s. Its mid market positioning was squeezed on price by the likes of Asda and quality by M&S leading to inevitable decline, so the argument went. The turnaround of Sainsbury’s demonstrated that a consensus view can be dangerous for those that hold it, and that excellent execution born of deep customer insight can lead to a very different outcome than the consensus expects.

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