Knowledge Bank Blog, Pricing & Promotions, Channel Execution

Winning the Battle for Trust in the UK Grocery Market : Part 2

Developing a simple, transparent shopper contract…

Last week we talked about the declining trust in the Big 4 UK grocers and contrasted that with the increasing trust in Discounters.  We think the Discounters have built trust by establishing a simple, transparent ‘contract’ with shoppers.  This contract says “in order to deliver the lowest prices in the market we will have less range, less store staff and more basic merchandising”.  And many shoppers are happy to take them up on that.

We think the Big 4 UK grocers also need to have a simple, transparent ‘contract’ with shoppers.  But it would be based on different terms.  We don’t think it is about competing toe to toe on price – the Discounter business model gives them advantages that are hard to match.  We think it is about differentiation.  About doing the things that the Discounters can’t do so well.  Effectively saying to shoppers, “We will give you these benefits and, yes, you will pay slightly more than you will in a Discounter.  But we hope you think it is worth it”.

It then boils down to whether shoppers prefer Offer A (lowest prices, but with compromises to get there) or Offer B (slightly higher prices, but more benefits).   This is no different to how things work in other industries.  For instance, British Airways versus Easy Jet or Audi versus Ford.   It is also no different to how things work in most FMCG categories – brand versus private label, premium versus mainstream brand.

So, what could the terms of a shopper contract look like for one of the Big 4?

Firstly, it would be more transparent on price.  It would make it clear that shoppers will not be ripped off and that prices will be competitive, particularly on brands.  But, overall, prices will be a little more expensive than the Discounters.  The slightly higher price will pay for the additional benefits delivered, the things that the Discounters don’t offer.

It would be supported by simpler promotions.   Reducing the number of different promotional mechanics and communicating them simply and clearly.  It would guarantee that when products are on promotion, they are a genuine deal.  To be fair to Sainsbury’s, this is the objective of their medium low strategy.

Secondly, it would outline the benefits that that you get when shopping in one of the bigger supermarkets.  For example, having a wider range.  If shoppers want to have the choice they usually have, then it costs a little more to deliver.  However, more choice gives the shopper more control.  They decide what they want to buy, rather than the retailer deciding what they are going to make available.

It would deliver a superior shopping experience.  This would mean minimal queues at the checkout and excellent customer service.  It would cover store standards, merchandising and product presentation.  It would include best in class displays, information and experience in categories (such as fresh meat and produce, personal care, wine) where shoppers want to be inspired.

Finally, it would mean consistently high delivery on product quality.  High product specification, and more supply chain transparency.  Aldi and Lidl offer good quality, so the Big 4 have to step up to the plate with their own label.  It also requires brand owners to maintain, and improve product quality.  The Big 4 need quality, trusted brands more than ever.

All in all, it is about offering a simple, transparent choice to shoppers.  Price or benefits?

Yes, this brings risk.  You have to deliver your side of the bargain.  You have to be prepared to lose some shoppers, in order to gain others.  However, it is brave.  It is a way of reframing the debate, an opportunity to refocus on the things that differentiate you.  Not just versus the Discounters, but against other members of the Big 4.

Who is brave enough to be the first mover?

Have a great weekend and speak to you next week.