2015 is looking bleak for the retail sector. Recent figures have shown a poor performance for the ‘Big Four’ at the hands of German retailers Lidl and Aldi.
Sainsbury’s saw its first Christmas sales decline in a decade, although the performance was ahead of expectations, while Iceland’s boss Malcolm Walker has described it’s trading over the festive period as “bloody awful”.
There is also no sign of a pick-up in the grocery market despite the falling cost of fuel, which has reportedly been putting up to an extra £10.00 a week into consumer’s pockets. Meanwhile Lidl notched up its best Christmas ever as shoppers snapped up its luxury items including Comte De Senneval champagne with an increase in like-for-like sales of 20%.
So why are the discounters winning the race to become consumers preferred place to shop? The obvious answer would be the heavily discounted prices along with good brand reputation. But at the heart of Aldi’s success is the adoption of practices that aren’t present within larger retailers. With the implementation of a simple business model, a niche line of products and fewer stores, it has the ability to weather a downturn in sales. Aldi’s Mitchelstown Region managing director Niall O’Connor recently echoed this theory by stating “the emphasis is on optimisation not maximisation”. Is this where the ‘Big Four’ have miss-stepped?
With the change in consumer shopping habits from one big weekly shop to more frequent small purchases at smaller outlets, is it time to trim the fat off? Over the years Tesco, Asda and Sainsbury have been building an empire of 24hr super stores which the market simply no longer demands, and now face heavy competition from discounters which have stepped in to fill the gap made by the recession.
Coupled with the rise of click and collect and home delivery, consumers now have fewer reasons to leave the house for spontaneous buying at the checkout. So as the retail sector scrambles to keep aloft within this period of transition, the focus for larger retailers should now be on lean supply chains, smaller outlets and a better understanding and anticipation of what consumers want in a time of austerity.