Marketing of Services
Introduction
Grocery retailing is dynamic and highly competitive. Competition has increased forcing industry leaders to continually seek for greater understanding of the changing mind-sets of shoppers. Survival and success in the industry requires great amount of merchandise, expertise marketing, increased knowledge of a new customer mind-set, greater innovation, along with a heightened focus on operating costs. There are about four major factors that are increasingly shaping the competition in the grocery retailing sector: the gravitation to value seeking among customers; the growth of technology-oriented shopping; increasing online encroachment; and the format and merchant innovation. As a result, there are different fortunes for the different players in the service sector.
Background
In the recent past, the UK grocery retailing landscape has undergone tremendous metamorphosis. This has been contributed by the strategic and tactical moves of the major players in the sector. Asda, for instance took over Netto while independents have acquired Somerfield from The Cooperative Group – the fifth largest UK food retailer. The entry of the “Big Four” (Tesco, Asda, Sainsbury’s and Morrisons) into convenience stores business has however had the greatest impact in the UK grocery retailing (Mutandwa, 2011, 65). Convenience stores have boosted the fortunes of the key players as an increasing number of British consumers seek more convenience together with less food wastage as well better value for their money. In light of this, the major players in the UK grocery retail sector are striving to set up more convenience store every year. Convenience stores are favoured by many consumers because of their strategic location price points as well as relatively reduced wastage (Peter et al, 2000, 233). The trend of the “Big Four” to gravitate into convenience stores in response to the mentality of both current and future customers of “top-up shopping”. There has been a rise of such consumers in the UK, those who buy a few items either on daily basis or every other day, or as and when in need of shopping for groceries. The “top-up shopping” has risen as a result of growing concerns over food wastage (Mutandwa, 2011, 69).
At the end of 2012, the worth of the UK grocery market stood at £163.2 billion, reflecting an increase of 3,8% from the previous year. The grocery market’s share is responsible for every £1 of UK retail spending. According to projections by IGD, the UK grocery market value would amount to £192.6bn in 2017, which would be an increase of 18.0% from 2012’s value (Eastham et al, 2012, 324).
Competitors in UK grocery retailing
The UK grocery retailing market is concentrated with the country’s top five grocers claiming over 50% of all grocery retail banner sales. However, their dominance in the market has become under increasing scrutiny from competition authorities aiming to prevent a monopoly (Roberts & Berg, 2012, 86). In addition, a further greater concentration has faced increased resistance forcing large grocery retailers such as Tesco, to explore other different store formats, including non-food sales as well as online shopping in order to increase its market penetration.
The five leading grocery retailers in the UK have worked to create a landscape with a number of channels, from hypermarkets and convenience stores toe virtual stores that stock a variety of shopping needs. The key players have diversified the pricing architecture of the entire grocery retailing to include premium prices and discount in order to appeal to a larger spectrum of consumers with different incomes levels (Roberts & Berg, 2012, 120). As mentioned earlier, the UK grocery market is dominated a number of first tier retailers: Tesco, Asda, Sainsbury’s, Morrisons, The Co-operative Group, Waitrose, Marks & Spencer, and Iceland.
Tesco
Supermarket Tesco is currently the largest grocery retailer in the UK , operating via a range of varied store formats. Tesco’s retailing services customers are the supermarket’s most loyal and valuable customers. These customers spend four times as much in Tesco stores compared to those who do not use any services (Eth & Randall, 2011, 125). In Q4 2012, supermarket Tesco was able to claw back its market share in the highly competitive UK grocery market. Tesco maintained its market share and matched market growth as the same period the previous year. Its market share was 30.4 percent. The industry leader reported net income along with diluted EPS of $13.3 million or $0.34 per share on $137 million of revenue. Its operating income increased to $17 million from $16.2 million in Q3. Revenue stood at $137.6 million compared to $163.1 million for the same period in 2011. Generally, the Q4 2011 results reflected a strong finish for the 2012 by posting highest annual revenue along with operating incoming in Tesco’s history (Roberts & Berg, 2012, 213).
Tesco has struggled to maintain its market share in the recent past as a result of increased competition and the high cost of fuel that deterred shoppers from making out-of-town visits to Extra stores. In addition, the period was characterized by soft demand for non-food items. Tesco’s total globe space grew by 8.4m sq ft to about 103.6m sq ft, reflecting a net gain of 8.8 %. The number of stores also increased to 5,380, which included 22 new Extras in the UK market. The supermarket also had strong growth in its online sales where it realized a 15% grocery growth in UK and a 30% growth in sales at Tesco Direct. The overall grocery inflation was 4.9 percent for the period, up to 0.4 per cent on previous period, signifying a continuing rising trend in the market since last September and showing the continually changing economic circumstances for UK’s top grocery retailers.
Asda
Asda is the second largest grocery retailer in the UK market. Asda primarily operates large format stores and strongest in superstores and hypermarkets. The grocery store is constant competition with Sainsbury’s for the second position in the in the UK grocery retail market. Asda’s has been hindered to take of market leadership by Tesco’s market strength which has a share of almost double that of Asda (Eth & Randall, 2011, 132). The customer base of Asda is drawn from the mid-lower social groupings, mainly C2 and D socio-economic groups. As such, Asda is most popular in northern towns having blue-collar families.
Asda’s Q4 2012 results covers a trading period of 14 weeks up to 5th January 2013. LFL sales in this period rose by 0.01%, excluding petrol. For the entire year, Asda recorded an increase of 1.0% in LFL sales (excluding petrol). Online sales increased by almost 20%.
Sainsbury
As of Q4 2012, Sainsbury was the third largest grocery retailer in the UK market, claiming a market share of 15.9%. The grocery store seeks to offer a continuous improving quality shopping experience with fairly priced prices, thus appeal to a relatively wide range of shoppers (Strydom, 2004, 84). The greatest challenge for Sainsbury’s is the perception among customers that it is more expensive relative to its main competitors.
Sainsbury’s Q4 2012 results indicated a total sales growth of 5.1% together with a LFL increase of 2.3% (both results excluding fuel). Thus, Sainsbury’s full year earnings were 4.5% up in total sales while LFL increase by 2.1%. The fourth quarter results indicate that Sainsbury’s sales momentum accelerated as well its market share, both through addition of extra space and organically. There was significant growth in Sainsbury’s value end Basics range as well as premium Taste the Difference label.
Sainsbury’s has managed to succeed where the industry leader Tesco has failed: offering good prices without compromising the quality of its grocery offerings. However, Sainsbury faced threats from a resurgent Tesco, Morrison’s development of fresh, and the continued expansion of Waitrose.
Morrisons
Supermarket Chain Morrisons was the fourth largest UK grocery retailer as of Q4 2012, with a market share of about 20%. In the Q4 2011 financial results, it was evident that Morrisons had a decline in LFL sales, worse than the entire market
