The best retail concepts have always blended good visual merchandising, great service and a sense of theatre to enhance the customer experience. Britain’s biggest supermarkets would do well to remember these sometimes-forgotten ideas as they continue to be locked in a price war. As figures released this week show, though Tesco and Sainsbury’s performed better than expected in Christmas trading, the real winners continue to be the limited assortment discounters and the premium supermarkets. What can the mid-market supermarkets do to regain market share, and as their combined share approaches 10%, how far could Aldi and Lidl go?
In their home market, Aldi and Lidl account for more than 40% market share, but unlike in the UK, discounters there are the norm. Interestingly, German consumers’ desire for a wider range, higher quality produce and a better customer experience is now forcing all supermarkets – the discounters included – further up market.
Throughout 2015 the Big Four will inevitably continue to cut prices, but they know only too well that they cannot beat the discounters at their own game. Is there an opportunity, then, to focus on customer experience as a way to win back market share?
There are signs in Tesco’s trading update from last week that the answer might be yes. Unpicking the new strategy, there is a clear focus on customers – targeting a more pleasurable shopping experience, a happier workforce and a smarter approach to meeting a clear demand for lower prices. Matt Davies, the former Pets at Home and Halfords chief executive brought in to lead Tesco UK & Ireland, has a strong reputation for customer service. Commenting on the move, Halfords chairman Dennis Millard described him as “well liked” among staff and known for regularly visiting stores.
Matt is also known for his emphasis on colleague morale, which bodes well with Tesco’s decision to boost the number of colleagues on the shop floor during Christmas. In his previous roles Matt drove a motivated and well-trained team, rewarding good customer service. He also introduced the opportunity for colleagues to earn more money by gaining useful qualifications. Sensitive to the huge turnaround task ahead of him, Dave Lewis has been engaging with the workforce since day one. Following last week’s announcements he paid careful attention to colleagues’ reactions on an internal message board and quickly addressed the three main concerns in a video to colleagues the very next day.
Meanwhile, Tesco is taking a category-by-category approach to price cutting, leveraging Dave’s Unilever experience. An example included in the trading update was the reduction in toilet, kitchen and tissue paper ranges, which are both space and labour-intensive across stores, warehouses and in transit. The newly limited range enables the supermarket not only to reduce its own costs, but also to negotiate more favourable terms with suppliers. Finding a solution that focuses on cutting costs rather than margins will allow Tesco to pass savings (11% on average) directly to customers in a sustainable way.
Immediate results have been positive; Christmas trading beat expectations and the share price has rallied 30% since mid-December – even with Moody’s and Standard & Poor both downgrading its credit rating to junk status. Also prioritising customer experience, and set to roll out a new customer-led store format, Waitrose increased its market share over Christmas and is continuing its expansion programme.
But international markets demonstrate that an emphasis on customer experience doesn’t have to mean premium prices. South Africa’s Food Lover’s Market is a supermarket that successfully combines everyday low prices with an approach that puts a beautiful and inspiring store environment, and helpful and engaging staff, at the heart of the customer experience. It’s a really exciting store to shop in!
I look forward to seeing how the figures stack up this time next year. If they put customer experience first, do the mainstream supermarkets have a chance of fighting back? Let me know what you think at moira@thembsgroup.co.uk, and have a great weekend.