What makes a grocer good value for money? Is it one that provides products at the cheapest price? That would seem the most obvious answer.
But according to former Sainsbury’s chief executive Justin King, most British consumers don’t choose where to do their weekly shop based simply on a ‘grams per penny’ metric.
Instead, King believes consumers’ perception of value for money is a more complex calculation; one that considers aspects like quality, level of service, retailer ethics, and even the safety levels of a supermarket’s car park.
Value for money: Former Sainsbury’s boss Justin King said most British consumers don’t simply choose where to have their weekly shop simply on a ‘grams per penny’ metric
This, he says, is why brands like Alidi and Lidle continue to hold a much smaller UK market share than traditional rivals Tesco, Sainsbury’s and Morrisons, despite the impact of a global financial crisis, government austerity measures and a pandemic.
Speaking to the Full & Frank podcast, hosted by former Sky News business editor Michael Wilson and veteran financial commentator David Buik, King said previous forecasts about the discount supermarket sector’s growth had been incorrect.
‘I can remember around 2010, the centre of gravity of most analysts was that discounters would probably have 25 per cent of market share by 2020,’ the one-time Galaxy chocolate production shift manager remarked.
‘They [Aldi and Lidl] today enjoy 12 or 13 per cent between the two of them. That’s very significant because it’s grown from a small percentage but is nowhere near as significant as many predicted.’
King explained that this is the result of market competition. When the discount grocers came into town with their reduced prices, other supermarkets responded in kind.
Many introduced their own concession ranges or value brands. Marks & Spencer, where King is a non-executive director, brought in food range Simply M&S, Asda has Smart Price, and even the budget brands have their own budget ranges.
This had an inevitable impact on the profits of established British supermarket giants. Whereas in the 1990s, they sat comfortably with a 7 per cent profit margin, they subsequently had to make do with a 2 or 3 per cent margin.
But for King, profit is not the ultimate raison d’etre of supermarkets.
‘The profit motive is an amazing thing,’ he said, adding that he does not believe it is the main objective of a retailer.
Upstart: The emergence of budget supermarket chain Aldi to the UK in the 1990s led to established British supermarket giants cutting their profit margins by over half
‘Serving customers well, or some form of words to that effect, should be the heart of any retail organisation. There was that sort of cliché line about them having become the fifth emergency service during the pandemic.
‘But of course, getting your weekly grocery needs for your family is right up there after health and education, I guess, as a priority for pretty much every family in the country.’
Due to their essential status and some consumer panic-buying, supermarkets broke many sales records throughout the Covid lockdown periods.
However, a much higher percentage of these sales were online, where competition is even more fierce, and the costs of building up the necessary infrastructure and dealing with the last-mile problem have made profitability hard to achieve.
The jump in online trade did have a silver lining for the more established British supermarkets; Aldi and Lidl’s progressively expanding capture of market share took a knock back, though it grew again as lockdown restrictions were loosened.
Achievements: Due to their essential status and some consumer panic-buying, supermarkets broke many sales records throughout the Covid-related lockdown periods
Their market share will continue to grow, predicted King, but he believes discount supermarkets will not be the most dominant chains in Britain in the near future.
‘To some extent, you can backsolve what they may or may not achieve from the number of stores they’ve announced they’re going to open. It is a store-opening game.
‘That still leaves me believing that a mid-to-high-teens percentage market share is the likely outcome if you take, say a 2030 view.’
King also warned that consumers have a challenging year ahead of them.
The UK inflation rate has surged to its highest level in over three decades, but the full impact this will have on consumers will not become clear until later this year.
Amidst this predicament, King said supermarkets should not drift away from their main goal of being on the side of consumers rather than the supply chain.
He added: ‘Don’t forget, when times are tough, the things that made you successful. Double down on them, because your job is to do a great job for customers.’
Listen to Justin King on the Full & Frank podcast by clicking here.
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