Tesco has finally halted its retreat in the vicious supermarket price war with Aldi and Lidl, but Sainsbury's, Morrisons and especially Asda are still on the run.
In the 12 weeks to November 6 2016, year-on-year sales at Asda were down 5%, according to data from Kantar Worldpanel. At Morrisons the figure was -2.4%, at Sainsbury's -0.7%. Only Tesco was able to grow, by 2.2%, in a sign that Dave Lewis’s strategy - of fixing the budget first before building up the brand – may be beginning to work.
Apparently those super-authentic farm brands are doing the trick too, finding their way into a quarter of Tesco shoppers' baskets. It's notable that the average spend per trip increased 2.1% to £20.69.
When you consider that Aldi and Lidl grew sales by 10.2% and 6.1% respectively, though, Tesco’s performance hardly stands out. The German ‘discounters’ (they hate the term) have succeeded in making themselves a mainstream option for British shoppers, with Aldi alone adding over half a million new customers over the 12 weeks. They haven’t poached many of them in their entirety – 94% of their customers also shop regularly at one of the major grocers –but they have certainly taken a share of their spend.
Aldi and Lidl 12 week market share, viewed in 12 week increments. For more detail, take a look at Kantar Worldpanel's interactive chart.
Any slowdown that may follow the Brexit vote will only make matters worse - remember that it was the austerity of household budgets during the 2008-9 recession that allowed Aldi and Lidl to expand at the expense of the Big Four in the first place.
Even if the UK does leave the single market at the end of its EU negotiations, it won’t help much. Aldi and Lidl have a healthy mix of British and European suppliers, just like Tesco does.
THE BIG FOUR FIGHT BACK
To resist the onslaught, the Big Four have aggressively cut prices. Deflation continues (though it has slowed notably - expect inflationary pressures from the falling pound to have an effect before long), with prices falling 0.5% over the last three months (sales overall were up 0.8%). While the big supermarkets can keep that up, enduring in a low-margin era as much less profitable entities, it means they will need to continue shutting their less profitable stores to shore up their dodgy balance sheets.
The discounters on the other hand have low prices built into their business models from the beginning, emphasising bulk over brand and price over range. Crucially, though, this hasn’t stopped them from surprising customers with quality too – premium own brands were up 29.5% over the period between the two stores.
Aldi and Lidl can use their size in the European market to get good prices from their suppliers, yet don’t have a depreciating UK property portfolio hanging around their necks, which means they’re able to expand into the gaps their rivals are creating.
In November 2014, Aldi announced a plan to increase its store tally from 450 to 1000 by 2022. It’s already more than a fifth of the way there. Lidl, on the other hand, is investing £1.5bn over the next three years to build 40-50 stores annually (it had 150 as of November).
To put that in perspective, Morrisons has 490 stores (though it has a much bigger footprint), while Tesco has over 6,000 including its Express convenience stores. There’s clearly still a long way to go before the discounters’ position in the market stabilises, but until then they will continue to expand their geographical reach.
If both German chains do indeed double their store numbers over the next several years, it wouldn’t be a tremendous leap to expect their market share to increase accordingly, by which time the term ‘Big Four’ may no longer be appropriate. Get ready for the Big Six.