Dark days could be getting lighter for major grocers

Rather like a listing supertanker Tesco continues to battle rough seas to right itself as it struggles with the after-effects of a space race that has left it drained of financial resources and lacking in differentiation in the marketplace.

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Speaking at the recent IGD Big Debate 2015 conference┬áDr Clive Black, head of research at Shore Capital, firmly laid the company’s woes at its own feet, suggesting: “It was preventable…They dug their own graves. Tesco drove the space race as Terry [Leahy, former CEO of Tesco] said: ‘Follow the money’. But too much space was opened. The general merchandise retailers started to fight back and the collapse of GM sales and margin has been a major problem.”

Despite the dark picture Black paints he points to the tide potentially calmer waters ahead. Having had a “free run” he reckons the discounters will find themselves under “more scrutiny” in future. He says the large grocers have to understand what the discounters are not. And he reckons they are “not a lot really”.

Black points to the tap being turned off on the space race as leading to a big opportunity because no further capital expenditure is being sucked down this channel. Meanwhile the growth of online sales – increasing by 15% per annum for some time he predicts – would come to favour the big supermarkets. He suggests they will be able to benefit from their multi-channel models that are supported by dispersed store estates. He points to Tesco, with 48% of online food sales, as being in a strong position especially as it can take advantage of picking-from-stores and click & collect.

In contrast, he suggests the discounters will find it “very difficult to sell fresh products to dispersed customers via central distribution”. For this reason he suggests the grocers should not worry about Amazon Fresh and from Ocado, of which he remains a very strong critic.

Black also reckons there will be gains to be enjoyed from the continued growth in the food-to-go market and that forecourt retailing will be a much bigger deal in the future.

Clearly this has not been lost on the likes of Aldi and Lidl, with both organisations expanding their estates, broadening their offers, launching or investigating online retailing, and looking to attract a much more widespread demographic mix.

This very much takes them into the land of the large grocers, which suggests the food retailing landscape could well be very exciting for consumers but extremely bruising for retailers.

Glynn Davis, editor, Retail Insider