It’s possible that the food retailing business models reached a public tipping point today with the announcement by Morrisons that they had adjusted their strategy to compete more directly with the discount players. Another of the large traditional players Tesco also recently indicated that they were also adjusting their profitability aspirations.
The market has been undergoing fundamental structural rebalancing over the past few years from a number of perspectives. Looking at this from the perspective of the traditional players this has been largely driven by a jockeying for position of players with subtly, and not so subtly, different business model approaches:
- Premium players – at the top of the market we have seen the likes of Marks & Spencer, and Waitrose performing well. They have pitched themselves well to take business not only from the premium end of the mainstream players but also from the restaurant/takeaway market, leading the way with their ‘meal deal’ and high quality fresh ready meal offerings for example.
- Internet/delivery services – for a period this was a differentiator in the market, however, as all of the major players have built out their platforms this has become almost a requirement for survival in the market. This was demonstrated in the important holiday season recently, where there was a demonstrable negative impact for those late to the party. The rise of the internet has created a new entrant, in Ocado, who has arguably helped use their ‘blank sheet’ to raise the game across the patch in many areas, and will likely now have to continue to use innovation to remain differentiated.
- Discount players – the invasion, largely from the continent of the discount players, who offer a no-frills approach is well documented. Their offering of lower choice, good quality, and lower prices has been a winner particularly when matched with the recent recesion giving them the ability to take market share at the lower end of the traditional market, where once the likes of Tesco would have pitched its ‘stack em high, sell em cheap’ mantra.
- Local players – as the number of large supermarkets have arguably neared saturation, partially driven by land availability and local planning perspectives, and a significant proportion of consumers doing a large shop in a supermarket and then ‘topping up’ locally, the traditional players have seen this as an important area of growth. This has allowed them to leverage their brands, offering familiarity with local convenience and charging a premium for this at the expense of the traditional local players such as Co-op and ‘corner stores’.
- Direct from source – this is a relatively niche and often localised model based on markets or franchised ‘box scheme’ models. Whilst small they do seem to have held their own with their attraction of providing a more direct link to the producer/supplier. This segment of the market is in tension with the premium players and their locally sourced product ranges but co-exist as whilst they are relatively small they perhaps offer mutual benefit rather than real competition.
- Integrators – these are a newer concept, that is trying to forge a niche between the direct from source players and the premium players. They offer an internet based service, and relatively simple to produce recipes matched with premium ingredients often direct from smaller, individual suppliers. They integrate the supply chain and provide high quality for the ‘time poor’. To date these are relatively small players and focused on the large metropolitan areas where their core target populations live.
As it can be seen, for the traditional large players the ‘war’ is being fought on multiple fronts. The winners will likely be those that are able not just to react to changes, as most of the major players have done to date, but those that anticipate the future successfully and position themselves ‘ahead of the pack’. Morrison, have certainly acted decisively, with their change of strategy, however, only time will tell whether their ‘discounter+’ type approach will be successful.
Success in this space won’t just be about the product on the shelves element of the business model it will likely involve other key aspects of ‘commercial innovation’ such as supply chain, processes, data/information, analytics, the role and deployment of people, etc.. all brought together to create a coherent and robust business.