Wal-Mart’s acquisition of Asda last year has got supermarket till rolls well and truly in a twist. At an already uncertain time for retailers facing the challenges of on-line shopping, the phenomenal buying capacity and expertise of Wal-Mart on their turf heralds a new jostling for position among the major food retailers. Price warfare was already in evidence, but the Wal-Mart/ Asda deal will be a major catalyst in forcing the pace, believes retail expert Verdict, which foresees major casualties as supermarkets struggle to cope with shrinking margins and growing competition (see below).
For the consumer, it’s all good news – lower prices, a wider choice of shopping formats, on-line ordering and home delivery, and customer-hungry retailers desperate to cater to their every need. For the supermarket designer, the changing market conditions bring new challenges to attract shoppers into the store in the first place and then provide an environment that is conducive to spending time – and crucially, money. It may be a more entertaining environment, or possibly be more educational about food and recipes, but either way it will be working a lot harder than simply stacking cans on shelves to keep its custom.
One thing seems certain given the UK’s stringent out-of-town planning policies: we’re unlikely to see Wal-Mart build a rash of warehouse-style Asda stores. It doesn’t necessarily need to: Verdict estimates that Wal-Mart uses 88 per cent of store space for selling in the US compared with only 55 per cent at Asda, a ratio that Wal-Mart will surely want to improve.
Instead of a move towards the big, retail strategists and designers, retail specialist RPA senses a continuation in the sector’s recent interest in developing a variety of formats to suit different shopping needs. Small is the trend – the inner city outlets of Tesco Metro and Sainsbury Local, which Fitch is now adapting for rural locations, have now been joined by Asda Fresh, whose concept was designed in-house. At 2200m2 the pilot store is half the usual Asda store size and is intended to be rolled out over 50 sites. Then there is the very big such as the larger Tesco Extra format and proposals (predating the Wal-Mart deal) for two Asda Supercentres, as well as potentially the biggest of them all – on-line shopping.
This illustrates the increasingly bi-polar approach to stores. For fresh, convenience needs you may go to a certain store and pay more for less, but you may also go to a bigger warehouse-style store for better value, but less convenience, says RPA retail strategy and planning director Jeffrey McCall. Strong branding will be more important than ever as supermarket retailers work across this variety of store formats and on-line channels, say RPA, which has worked with Tesco in the UK and a host of major international food retailers.
Grocery retailers are having to respond to customers, who have a lot of power because they have alternative places to shop. Consumers will shop by multi-channels so there won’t be much brand loyalty, says McCall. “A reward card won’t be enough in the future. Those retailers which will win will be those which convey their brand values in a consistent manner across all channels,” he says. The new on-line shopping medium will affect store design: since it best suits the sale of price-driven, standard commodities, retailers are left to extract their profits from higher margin goods such as fresh food, delicatessens and specialist offers. This is where the design effort will be centred.
“With more and more shopping via the Net, there will be a great need for supermarkets to get customers to and through the doors and to make the shopping environment more exiting,” says Yaron Meshoulam, development director of 20/20, the lead consultancy on Sainsbury’s new Central concept on London’s Tottenham Court Road. He anticipates the rise of “destination” stores with added attractions rather than simply larger outlets.
“On-line will be the catalyst for the traditional store becoming about the foodie store purchaser and the added value environment where people want to see and feel and taste,” adds David Mackay of Crabtree Hall, predicting the rise of offers for dilettante gourmets. “Food is increasingly a leisure thing and is seen as stylish and fashionable. Supermarkets will have to cater for customers who are more discerning and want to be educated and entertained.”
This is already starting to show through. In larger store formats you’re getting more attention to fresh food departments and staff training, he says, referring to the marketplace environments of Tesco Extra. Mackay anticipates a greater emphasis on theatre – cooking demonstrations by celebrity chefs, tastings, and more education on food content and recipes. “If you’re being entertained and amused you part with your money happily,” he says.
Meshoulam also sees the start of a trend for more animated interiors. “There will be more excitement, more theatre, more tastings, and areas of excellence in the store rather than aisles and aisles of product,” he says. He points to international supermarket retailer Albert Heijn which is already trialing a new circular store layout with a restaurant in the centre and chefs demonstrating recipes and techniques, all visible to the shopper. But entertainment-fuelled retail brings its own issues which may limit its introduction in the UK. “The biggest problem is whether the excitement of chefs and such like will equal profits of the space that had previously been used for goods,” says RPA chairman Gerry Postlethwaite.
Controllable theatre may be where it’s at, but margins are always top of the agenda. Imagination marketing director Ralph Ardill is also doubtful. “Supermarkets are all realising they need to offer more of a service, more education, more entertaining because they can’t rely on pure product. The problem is that everyone is going down the same route,” he says, adding that it’s incredibly difficult to impart a feel-good factor without being patronising or pastiche.
Some are sceptical about the trend for more theatrical supermarkets because shopping remains such a cumbersome process. “Supermarket shopping is a necessary evil, a chore. It’s not yet leisure. It has so many functional elements that the concept of making it too entertaining doesn’t fit,” says Steve Potts, director of Fitch Digital. He anticipates a greater use of technology in-store to improve the shopping process. This may take the form of voucher machines in-store which read the information on a loyalty card and offer immediate and appropriate discounts, may be advice on what food to have with a particular wine and issue maps on where to find it in the shop. And on a purely practical level, he anticipates an Ikea-like crÃ¨che to free up parents for a less hassled shop. The key thing is sensitivity to customer needs, in the light of the current price-driven retailers. “You’re doomed unless you’re massive [like Wal-Mart].The rest of the field can only compete in terms of sensitivity,” he says.
The market retail consultancy Verdict’s latest report on the supermarket sector expects:
– Wal-Mart/Asda to make further acquisitions in the UK to consolidate its investment, and to release more selling space purely through superior logistics and chain management.
– Defensive mergers and/or European acquisitions to acquire greater economies and efficiencies of scale. Verdict doesn’t rule out disposal of stores as retailers concentrate on particular retail formats.
– Fiercer than ever competition. An escalation in price warfare will erode the position of retailers in the upper-middle mass market and result in intense pressure on Sainsbury’s, Safeway and Somerfield. Since prices are locked into a deflationary spiral, only the fittest and the most strongly differentiated will survive.
– Harder fought customer loyalty as consumers shop around to make the most of low prices and special offers.
Source: Verdict on Grocers and Supermarkets 2000