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A changing landscape confronts supermarkets

There was a time when the rise of the supermarket looked unstoppable.

By 2008, for example, Tesco had a presence in every single postcode in the UK and Inverness had earned the nickname Tesco Town, so omnipresent was the chain in the Highland capital.

However, in the last few years, the domination of the supermarkets has looked much shakier and the most recent sales figures appear to underline the trend. Like-for-like sales at Tesco, still the market leader, were down 2.4% year on year in the six weeks to January 4, but it was even worse at Morrisons. There, like-for-like sales were down by 5.6% , which spooked the City.

There are positive and negative reasons for this trend. The negative reasons are clear: household debt is rising faster than income, millions of people's wages have been frozen for several years with no sign of a rise in sight, and energy bills have continued to rise, tightening household budgets even further. Middle to lower income families have felt the pressure of this most and have been forced to look elsewhere for cheaper deals.

This may explain why supermarkets towards the upper end of the market, such as Sainsbury's and Waitrose, have been doing better, although in the case of Sainsbury's the performance is only marginally better with like-for-like sales rising by 0.2%. The fact that Sainsbury's escaped a big fall may be because of the polarisation of wealth caused by the economic downturn. In other words, those on lower incomes have been disproportionately affected and therefore their favourite shops are suffering too.

However, there are positives too in the changing fortunes of the supermarket. One of them is that competition has heightened in recent years. Customers not only know how to shop around online, many have also lost their prejudices over using discount stores such as Aldi and Lidl. Many families have been forced into this situation but stores like Aldi also offer value for money not always available in the mainstream stores.

There will also be some who see the recent figures as a positive and much-needed readjustment of the domination of the big chains and it is easy to feel sympathy for that position. For too long, for instance, the supermarkets have used their bulk buying power to drive down the price Scottish dairy farmers can achieve for their milk. A widening of competition may help to readjust that, to the benefit of Scottish producers.

As for customers, millions still like the convenience of the supermarkets and some of the chains have responded to customers' changing needs with voucher schemes that can save money. But where is the genuine innovation? Christmas 2013 was the internet Christmas, for example, and yet Morrisons still does not have an online presence to speak of.

Morrisons will have to address that issue if its sales are to improve but there is lesson for all the supermarkets in the sales figures. The rise of the discounters, the growth of the internet and the pressure on incomes have changed the market. Now the supermarkets must change too.

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Food and drink

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