Reinventing supermarkets in the post price-war era
By Dr Ben Voyer, Associate Professor at ESCP Business School
After decades fighting to be the cheapest, many supermarkets chains need to reinvent their model. With a grocery market increasingly divided between deal-savvy consumers, and those who can afford premium brands and shop from premium supermarkets, mid-range supermarkets in the UK (e.g. Tesco, Sainsbury’s, Morrisons or Asda) are in a difficult position. Part of the problem comes from a change in consumers’ shopping habits. Consumers are becoming more binary, going either for price or quality. Price sensitive consumers tend to shop at hard-discount stores, or even off-price retailers (e.g. Pound shops). For quality, they would go for more upscale supermarkets (Waitrose, Department stores food halls, or organic supermarkets). It therefore leaves mid-range supermarkets in a rather difficult position; close to what is called ‘confused positioning’ in marketing, with a message trying to emphasise price and quality.
What can marketers do about this? The first thing marketers need to understand is that it takes – and will take – time to change consumers’ habits. This is due, among other factors, to what consumer psychologists call ‘inertia’, the fact that people prefer sticking to the same behaviours rather than adopt new ones. During the economic downturn, consumers’ behaviours changed durably, and have not integrated yet recent changes in the economic context. It could in fact take several years of growth and a positive economic climate for it to be the case. For customers who have regained some purchasing power over the last months, the temptation is to stick to the hardly acquired habits to pay attention to the price of what they buy, and to indulge in other things (e.g. night out at the restaurant, traveling…)
Given the difficulties to change consumers’ behaviours, supermarket chains need to be creative in order to convince consumers to spend more in store. In order to incite them to pay more, supermarkets need to re-differentiate themselves by showing their specificity and the exclusive nature of their products or services. This could involve developing exclusive products and product lines, through collaborations with celebrity chefs (e.g. Heston Blumenthal & Waitrose). This could also take the form of negotiating exclusive lines, formats, etc with manufacturers, offering more organic products & lines, or sourcing innovative products and food from around the world, and negotiating exclusivity with suppliers. Services are also important, for instance developing a smartphone application (for online shopping, creating automated shopping lists, suggestions, etc), or offering various delivery options, or cooking recipes.
The bottom line is that, as we transition into a post-price war supermarket era, marketers should creatively work out how to make price irrelevant for consumers by showing that services and exclusive products matter more.