By Denise Marray
Gulf Times Correspondent
London
There’s a lot of talk at the moment about supermarket wars and market challenges, especially this week with Tesco in the spotlight for all the wrong reasons, but for Qatar Holding LLC it is the performance of J Sainsbury plc in which it has a 26% stake that holds special interest.
To get an overview of the highly competitive grocery market, Gulf Times spoke to Edward Garner, Director at Kantar Worldpanel, the global leader in continuous consumer panels. In the UK, Kantar’s consumer panel of 30,000 households is the largest single source of continuous consumer and shopper insights.
“Among the “Big Four” mass market supermarkets, Sainsbury’s is in a better position on things like food quality and ethics than Tesco, Asda and Morrisons,” Garner said.
Asked about the importance of having a good reputation in areas such as Fair Trade and Free Range, Garner said: “For the mass markets it is important but they can’t expect to charge a large premium for it.” He drew a comparison between Sainsbury’s and niche operator Waitrose to underline the contrasting approaches.
“For shoppers that go to Waitrose, which is a much smaller 5% outlet, price is very far down their list of objectives and they will happily pay extra money for something that may be organic or comes from a single estate. Food provenance is often important to such customers.
“Sainsbury’s sits towards the upper end of the big four in the sense that on areas that are ethically light – not so much organic which you pay a premium for, but things like Fair Trade, local and free range they score quite highly in consumer perceptions. So, if you like, they are in a better position on things like food quality and ethics than Tesco, Asda and Morrison’s but they are not a niche operator like Waitrose,” he said.
With regard to the pressures from the discount supermarkets, he said there are a number of strategies that can be employed to guard against erosion of market position. “There are two main ways of competing with the discounters such as Aldi and Lidl.
One way is to compete on price which is quite tricky because Lidl and Aldi have a very price-driven supply chain – it’s a cut down operation rather like Ryanair; the whole DNA of their operation is low cost. Trying to compete with them on price is quite tricky – it’s very unlikely that profitably you are going to be able to beat them penny for penny. But nevertheless there is a price competition route and that’s the one followed by Asda which has a strong price reputation.”
He added: “The other way to compete is to completely differentiate yourself from them. So Waitrose have done that by saying we are going to be everything that the discounters are not. They sell a very wide range of products that you would be very unlikely to see in a discount outlet. For example, you could find about twenty different types of olive oil in Waitrose whereas in a discounter you would find about two or three.
“Another one that differentiates itself is Marks & Spencer food because it is very strong in the chilled convenience ‘something for tonight’ market which is not a speciality of the discounters.”
He observed: “Sainsbury’s differentiation will be partly food quality and selection in the sense that you can get anything you need at Sainsbury’s, whereas it is inevitable at Aldi and Lidl that there will be gaps in your shopping list when you come out.”
Critically, he pointed out: “Of the major supermarkets it is the one least dependent on low prices. In other words its shoppers are looking for food quality and ethics but not low priced to the extent that it would be looking at Tesco or Asda. Sainsbury’s needs to have pricing that reassures its shoppers that they are not being ripped off. I don’t think shoppers would expect a penny for penny match with discounters but it does have to maintain a mass market pricing positioning.
“If it matches Tesco and Asda on price as an example it is somewhat defended by the fact that at those price levels consumers will value the other ethical areas that has a reputation for. I think people would place it above Tesco Asda and Morrisons in terms of food quality. Sainsbury’s ranks highest in terms of food quality among the mass market outlets.”
Sainsbury’s closely observed ethical supply chain meant that it was not caught up in the horse meat scandal last year. Garner sees a streamlined continuity in the leadership and vision of CEO Mike Coupe who worked closely for many years on key policies with his predecessor Justin King.
Asked to comment on how Tesco’s current troubles could impact on its bottom line, Garner said:
“Tesco’s current accounting wrinkle has moved the story from the business pages to the front consumer pages and that cannot be helping Tesco’s sales. The key word is ‘trust’ and if that gets damaged it is impossible to ignore.”
Speaking of the highly competitive environment which is proving tough for all operators, he said. “They are being presented with challenges in the form of aggressive price competition and the fact that inflation has effectively disappeared. Obviously, without being cynical, inflation is quite friendly for balance sheets and grocers quite like a background level of inflation as a lot of businesses do. There is no hiding place now when inflation is zero.
“It could even hit negative because one of the components of price competition is the cost of produce. The general word on the street is that the harvesting environment is pretty benign at the moment and harvests are coming through quite strongly and in certain markets there may even be gluts. You will get price deflation. It’s already existing in things like potatoes, certain vegetables, bread and milk.”