Last week, Morrisons announced a £176 million loss for the year to the end of February and issued its second profit warning in three months.

Last week, Morrisons announced a £176 million loss for the year to the end of February and issued its second profit warning in three months.

These latest results further highlight the struggles that the UK’s big supermarkets are facing when it comes to the ever-changing retail landscape.

The rise of budget supermarkets such as Aldi and Lidl, in particular, has increasingly put the big four supermarkets’ market share under pressure.

In order to tackle these challenges, Morrisons has revealed an aggressive turnaround plan.

This involves a permanent price-cutting strategy to take on discounters such as Lidl and Aldi. In addition, the UK’s fourth biggest supermarket plans to sell £1 billion of its property portfolio over three years and offload its struggling Kiddicare baby goods business and its stake in New York-based Fresh Direct.

It’s not just Morrisons that has been caught out by the discount grocers. Tesco‘s share of the UK grocery market has shrunk to its lowest level in almost a decade - 28.7% in the 12 weeks to 2 March, compared to 29.6% a year ago, although it comfortably retains its title as Britain’s largest retailer.

The discount grocery retailers are clearly shaking up the industry. According to Kantar Worldpanel, Aldi and Lidl have taken a combined 3.5 share points. At the same time, Waitrose has remained strong at the high value end, and so the real risk for the big four is being stuck in the middle.

A further reason why the big four have struggled comes down to a change in the way that people shop.

A lot of consumers are now choosing to top up their food supplies rather than go for one big weekly shop. As such, the industry is seeing an increasing preference for convenience stores rather than the big traditional supermarkets.

In response to this shift, Sainsbury’s said earlier this year that it will have more convenience stores than supermarkets in 2014. In addition, industry body IGD estimates that the value of the convenience sector will grow from £35.6 billion in 2013 to £46.2 billion by 2018.

The battle for convenience stores is therefore heating up as the big four seek to expand their local format portfolios.

However, they still face competition from other businesses that want to get hold of some high street commercial space, including betting shops and residential property developers who have been snapping up derelict pubs.

For all these reasons, the grocery industry is facing a major shake-up, with discount grocers stealing market share and convenience stores taking precedence over large supermarkets.

It is therefore inevitable that the big four will have to make some significant structural changes in their fight for survival, just as Morrisons announced this week.

However, it isn’t all bad news. After all, much of this change is being driven by consumers.

More choice, greater convenience and better value products means that these businesses are actually serving the 21st century shopper’s needs better – which is ultimately the aim of any well structured retail business.  

  • Dan Coen, director, Zolfo Cooper