The popular consensus is that the grocery market will return to ‘normal’, but there is debate over how long it will take.

The popular consensus is that the grocery market will return to ‘normal’, but there is debate over how long it will take.

The optimists such as Sainsbury’s Mike Coupe believe shoppers will ditch discounters in six to 12 months as consumers start to trade up within ranges and supermarkets as memories of recession fade.

That was the 1990s experience, but this time round I sense it is wishful thinking.

Leaving to one side the intense competition, over-capacity, renewed austerity, deflation and wage cost pressures, I see the grocery market’s malaise as representative of a long-term shift in consumer behaviour allied to complacency and poor management by the big players and not primarily a function of recession.

Profitability

My big concern is profitability – or should I say the lack of profit.

Some years back analysts castigated Dixons with the argument that all its profits were derived from selling warranties.

“My worry is that the new revenue streams not only cannibalise existing store sales but are intrinsically less profitable”

John Richards

Today one could draw a similar analogy with the grocers who make profit from supplier contributions. Remembering the chronic over-capacity and watching each player chase market share, one can’t help but apply that old adage: sales are vanity, profits are sanity.

Belatedly the superstore race has been halted and closures are occurring – for instance, Tesco’s Homeplus stores – but this will still be more than offset by convenience store and online growth.

My worry is that the new revenue streams not only cannibalise existing store sales but are intrinsically less profitable, whereas the incentive for opening larger stores had been the opportunity to sell higher-margin non-food items.

Nobody has as yet produced any meaningful numbers to demonstrate that either convenience or online is profitable.

It may be cruel, but should Asda’s latest management reshuffle be seen as akin to rearranging the deckchairs on the Titanic?

Lateral thinking

The winners of this zero-sum game need to indulge in some lateral thinking.

IKEA’s prediction that by 2025 we won’t have fridges, and food will be delivered fresh each day by drones, sounds as if it belongs in a sci-fi movie.

Yet fundamental change is inevitable. The internet makes retailers redundant anachronisms because manufacturers can commit and relate directly to customers without the requirement for any intermediary.

Subscription models now in their infancy could become mainstream and blur traditional boundaries.

In a sense we’re going back to the past, turning the clock back to the daily milk round (ironically Asda’s origin).

“Should retailers already be talking to the Government about their role in providing ‘care in the community’ and the add-on paid services that they could provide?”

John Richards

In today’s world the Ocado or Tesco delivery driver may be the only personal contact that elderly people enjoy every week and, as the demographics dictate an ever growing army of older people, there must be a ‘channel’ somewhere.

Should retailers already be talking to the Government about their role in providing ‘care in the community’ and the add-on paid services that they could provide?

I am encouraged by the first signs of new thinking, for example, John Lewis introducing charges for low-value click-and-collect orders or Sainsbury’s trial of electronic shelf-edge labelling. But this is the tip of the iceberg.

Dramatic change and the development of profitable revenue streams are essential if the big grocers are not to suffer the same slow, sorry terminal decline seen by the likes of Woolworths.

  • John Richards, independent retail consultant and non- executive director