For a year or so, a war has raged on the high street and across the aisles of vast out of town emporia. Undercut by Aldi and Lidl, a new breed of low price, low range German ‘discounters’, and outclassed by the unashamedly bourgeois grocer Waitrose, the Big Four supermarkets have frantically slashed prices to hold onto market share.
The war’s taken its toll, not least on the biggest of the big beasts, Tesco, but there are signs that it may be coming to an end. According to research firm Kantar Worldpanel, which publishes monthly market share figures for the grocery sector, the most recent decline in prices, which began in September 2014, is beginning to slow.
‘While like-for-like groceries are 1.9% cheaper than this time last year, this is not as steep a fall as last month, when prices were down 2.1%,’ said Kantar’s Fraser McKevitt. ‘This means that if current trends continue, prices will once again start rising by the end of the year.’
It makes sense. Tesco and the others already had a reputation for squeezing suppliers to keep prices down, but they can only squeeze so far. The easiest cuts will have been made long ago.
The impact these cuts have had on profits has been obvious, but it still hasn’t stopped the rising powers from gnawing away at the market share of the Big Four (Tesco, Asda, Sainsbury’s and Morrison’s). Take a look at these charts. The first shows the winners and losers in the grocery wars over the last few years, in terms of the difference in their overall market share.
The pattern is clear: Aldi, Lidl and Waitrose have grown at the expense of the Big Four, especially Tesco and Morrison’s. Because of the difference in their sizes, however, this doesn’t really reflect the performance of each grocer relative to its own scale. The second chart shows how their market share has changed compared to what it was before (so a fall from 40% to 20% of the market would mean the share halved, i.e. a 50% fall).
The discounters’ growth has been dramatic, Tesco and Morrison's decline painful. The worst thing is that even if prices do stop falling, this doesn’t appear to have halted the conquest of the market by Aldi, Lidl and Waitrose. The Big Four are just running out of ways to fight back.
This chart (the last one, promise) shows the relative growth of the four biggest players after the Big Four in intervals.
Despite a dip last Christmas, the three challengers are continuing to grow their share at a rapid pace. Will it slow down eventually? Yes. The mid market almost by definition has to retain the lion’s share – Aldi, Lidl and Waitrose just aren’t designed to appeal to everyone. For the time being, however, the long retreat of the Big Four looks set to continue, even if the downward pressure on prices looks likely to ease over the next year.