21 Apr 2008


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srcg wake-up: supermarket price war on the cards?

srcg

Marks & Spencer

Tesco

Scott Annan, director of convenience consultants, srcg, says ethical retailing will take a back seat in the current credit squeeze

Have you noticed the current round of credit crunch store cutbacks and closures are all in discretionary purchase areas: JJB sports, Jessops, Blacks and Mexx?

In tough times, we still all eat, drink and bathe which means our supermarkets and convenience stores should do well.

I noticed Sir Stuart Rose joined in the economic commentary this week and said he expects this tougher environment to last until 2010.

Sir Philip Green said it is as tough as he has seen it.

If these two ‘sirs’ say it is tough then it is tough. Nevertheless, we all know it is so every time we open our wallet or purse.

If like me, you have noticed a huge hike in the cost of food, for example, pasta is up 70%; do you buy less, maybe pick up regular instead of organic, or just shrug it off? I know I try to shrug it off but I find that something else gives.

The usual two coffees and nice bread toast on Saturday morning at my local French café is now one coffee. I have the toast at home.

I know this sounds somewhat trite but at least one café chain I use, Natural Café, has shut its doors in the last month. Does this signal anything for our supermarket and convenience shopping?

I think it signals changes and a return to price marketing for at least the next year.

Historically when money is tight, comfort and fast food, alcohol, cigarettes and coffee have all done well. They do a good job of cheering us up.

Utility bills, petrol and mortgages are at least 25% higher than a year ago and food increases feel about the same.

I forecast our priorities for the next two or three years will be more basic and the issues of green, recyclable packaging, ethical and local will take a back seat.

They each remain important but as they tend to carry a price premium and a higher retailer margin, they are less attractive when our household costs are already up a quarter.

I expect retailers such as Marks & Spencer and Tesco, which have one or more of these strategies embedded in their marketing platform will not change tack, but will revisit price marketing in the forthcoming battle to hold revenues and share.

There is of course another side to the cost cutting and bankruptcy in retail. Closed shops should be a bonus for our better food retailers as they provide great locations for convenience stores and they can be had at distressed prices or lower rents.

We will continue to grow our on-line spend more in a search for lower prices rather than value and convenience.

Some retailers will find it uneconomic to trade all their stores but our food and drink majors will open more space and stores taking even more of our weekly spend.

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