Who are the Big Four and what’s wrong with them?
The so-called Big Four are the most influential, highest grossing supermarkets in the UK: Tesco, Sainsbury’s, Morrison’s and ASDA. They’re fighting the Great Price War against German discounters LidlAldi**.
The big four are having a pretty tough time. This year Tesco, Morrisons and Sainsbury’s share prices have reached 11-year lows. Some of you will remember Walmart’s takeover of Asda and the aggressive comparison marketing that followed. Now even that isn’t enough to keep customer’s interested as Asda is falling behind in Yougov’s BrandIndex value rankings. Asda didn’t even get a look-in in the mid-year Buzz-rankings, showing that consumers are caring less about brand loyalty are more about cost effectiveness.
And of course shareholder confidence isn’t helped by Tesco’s drunk-clown-at-a-children’s-party approach to financial planning. Not only did execs overestimate profits by £250m, but just days later a very conspicuous delivery of a Gulfstream jet worth £30m came in the post. A jet they now have to sell back along with the four others to make ends meet. The supermarket’s share prices have plunged by nearly 50% so far this year.
How does the price-war work?
The price-war has been going since September 2011, when Tesco pledged to slash the price of 3,000 household goods by up to 20%. The war was started in response to Asda’s (then newly annexed by Walmart) aggressive cost-centred marketing campaigns. Since 2011, prices have fallen year by year. The price of fuel is now at it’s lowest it 4 years and the rapid expansion of LidlAldi is forcing retailers to cut costs even further. This is becoming an increasingly high-risk strategy for major players like Tesco and Sainsbury’s as their overheads are naturally higher than their German competitors.
Alongside roll-backs, price slashes and 2-for-1 offers, the superstore chains are opening more small outlets closer to each other in an attempt to corner the urban market. As an example, in the one mile radius around the University of Sheffield’s main campus five Sainsbury’s local stores have opened in 2 years, monopolising the student shop.
The growth of the discounters has hastened the price war as sales declined at Morrison, Tesco and Sainsbury, causing their shares to drop to the lowest in more than a decade.
Where did LidlAldi come from?
LidlAldi entered the UK market in 1994 and 1990 respectively. They have a huge advantage over the big four for a number of reasons. Firstly, they’re privately owned. This means that the suits at Aldi and Schwartz, which owns Lidl, are not held to account by shareholders whims. Secondly, their overheads are dramatically lower than at UK retailers, meaning LidlAldi can afford to go a lot lower in the price wars. If the major retailers try to compete in the same way as Morrison’s, they’re likely to land in more hot water.
Why are LidlAldi getting popular now?
Simply put, LidlAldi are spending more money on their businesses. Local papers in the UK are filled with stories of the German discounters invading Big-Four territory and opening stores. This means they’re easier to get to than ever. Most customers will still choose convenience of location over price, so moving into communities could spell disaster for Tesco and Morrison’s bigger stores.
This summer, discount grocer Aldi Launched an ambitious “like brands” campaign to target their least loyal customers. Their message is more “selling stuff cheaply” than “selling cheap stuff”. Sales in-store have increased by 32.7% in the 12 weeks to September 15. Aldi’s score on YouGov’s BrandIndex has shot up , boosting it’s ranking against others from 12th to 7th, and over the past moth the discount superstore outstripped Asda in value for money ratings.
But will it last?
Not necessarily. The story at the moment is that LidlAldi’s customers have started to include far more members of the middle-class, mainly because you can get good-quality foreign supermarket foods for much less than the stigmatised Tesco Value equivalent.
What makes LidlAldi so cheap though is it’s lack of overheads. Food is brought out on palettes and the tills only open when the queue starts looking ridiculous. As the discounters’ popularity increases with middle-class shoppers, so will demands for better service, ultimately ending in prices having to go up again to afford more staff. There’s an argument to be made that either their success won’t last, or they’ll become indiscernible from the Big Four.
noun – Collective term used to describe German discounters Lidl and Aldi
note: Contrary to myth, Lidl and Aldi are not related. Lidl was founded by the Schwartz family in 1930, while Aldi was born in 1946 and owned by Karl and Theo Albrecht. Aldi actually stands for Albrecht Diskont (Albrecht Discount).