Mintel reports consumers favour price-led retailers

European consumers, particularly those in the UK, are gravitating towards price-led retailers and away from premium price chains, according to the latest sector analysis by research group Mintel.

Much of this activity is taking place in the food sector – the top 14 European chains and 17 of the top 20 are food retailers.

Tesco is forging its way into Europe and is the second largest player behind French group Carrefour. The report claims the gap between the two businesses is steadily closing and Tesco is already significantly ahead of the third largest retailer, France’s Intermarché.

In the UK, the company’s aggressive growth programme has seen the acquisition of the Adminstore (operator of Europa, Harts and Cullens) and T&S Stores convenience chains and it has been a key force in the penetration by supermarkets into the convenience sector. It already commands a 6 per cent share of this market. Mintel’s report also claims that Tesco is something of an anomaly in the current market trends in Europe. It is the only non-‘value’ retailer to show significant sales gains in the most recent financial year. The other strong performers are all price-led retail brands, according to the data. These include Germany’s Aldi and Lidl – ranked sixth and eighth respectively – and US group Wal-Mart, which owns Asda in the UK, as well as William Morrison, owner of Safeway.

‘There has been a lot of growth of price-led retailing in the UK, but I was surprised at how much this is happening on the Continent, too,’ says Mintel director of retail research Richard Perks.

‘Here, Tesco and Asda are doing the most in this area, while Sainsbury’s has perhaps concentrated too much on margins and not enough on price competitiveness,’ he continues.

In the UK market a number of factors may accelerate this trend toward value outlets. Rising house prices and increased borrowing have fuelled the sales boom, says the Mintel report, but with consumer credit at a record high and interest rates on the rise, the report warns that ‘it all looks untenable’.

In these circumstances, there tends to be a trading down in consumers’ shopping habits, says Perks. Consumers will turn to the cheaper chains, but they will also trade down within a store and the supermarkets need to respond to this situation.

‘They will put more emphasis on price and the price-led generics often become more prominent in store displays. In terms of innovation too, there is likely to be a move toward developing products that are competitive on price,’ Perks explains.

Steve Collis, joint managing director at JHP Design, believes that the picture may not be quite so black and white. Rising debt and interest rates might prevent people from moving home, freeing up the ‘residential element’ of spending for food products.

Collis is working on Somerfield’s fresh food Market format, (DW 13 November 2003), which is currently being rolled out by the company, and has also worked extensively with Waitrose.

‘Consumers will now buy branded goods, such as Heinz baked beans, at the cheapest prices possible because they are of a known and reliable quality. This benefits the value retailers. But the same consumers may also turn to premium stores for a rare truffle, for example. Shopping habits are split and the trend isn’t all towards value chains,’ says Collis.

Europe’s Top ten Retailers by sales

Company Origin Sales (£Bn) Year-on-year growth
Carrefour France 42 4.3%
Tesco UK 30 6.9%
Intermarchi France 23* n/a
Rewe Germany 22 7.4%
Edeka Group Germany 21 5.4%
Aldi Germany 20* n/a
Metro Group Germany 19 3.9%
Schwarz Group Germany 17* n/a
E Leclerc France 16 4.0%
J Sainsbury UK 14 -7.2%

Source: Mintel, September 2004 *2002 sales figures

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