A new report from Bloomberg Intelligence (BI) highlights that European supermarkets have been pitched into a battle for market share, triggered by consumers’ reluctance to spend more on food even after food inflation slowed.
Charles Allen, Senior Industry Analyst (Retail) at BI, commented: “Food inflation is arguably the most visible metric for consumers, given the frequency of purchases, so supermarkets have had to reassure shoppers they aren’t price gouging, while offering alternatives, especially in private label, to make the basket as affordable as possible.
“The pace of food inflation has eased as rapidly as it accelerated, but prices are still much higher than they were in 2021, with little prospect of returning to prior levels, so the more recent rise in real wages can gradually restore spending equilibrium. The burst of inflation has raised sales densities at Tesco and Sainsbury’s, improving the profit model with freehold ownership of stores, and giving them flexibility if rivals become more aggressive on price. Axfood, Carrefour and Ahold Delhaize need to match this performance.”
The BI report notes that falling food volumes have mirrored inflation-driven increases in sales value, exerting pressure on supermarkets to find a new catalyst to propel revenue. Market share is becoming more important, with significant changes in several countries. In France, the implosion of Groupe Casino – with most of its large supermarkets sold – and Carrefour’s purchase of Cora, has reshuffled market shares. However, Leclerc, which barely participated in the deals, remains the leader. In the UK, Tesco and Sainsbury’s are gaining share, with Asda in particular declining, while the advances being made by Aldi are much more subdued.
BI stated that Sainsbury’s progress in food would be confirmed by results from its first store transformations, which allow the stocking of a greater percentage of its catalogue in more supermarkets. This could lift the average basket and encourage shoppers to purchase more items where Sainsbury’s has below-market average penetration. Its volume recovery has led UK supermarkets and looks to be sustained, giving the company confidence to open 10 stores acquired from Homebase.
Allen concluded: “Overexpansion was a factor in the early 2010’s margin drop, though Sainsbury’s has much UK white space into which it can expand. Operating profit guidance of £1.01-£1.06bn may have room to rise, especially if there are signs of a general merchandise recovery, but the need to retain pricing firepower through peak season may lead to prudence.”
NAM Implications:
- Despite some improvements, we are still dealing with consumer perception of market realities…
- Meaning a continuing reluctance to spend.
- And any steps to encourage expenditure…
- …by definition, drives consumers towards cheaper brands, own-label and the discounters…
- …where their possible discovery that the anticipated compromise on performance was less than expected…
- …means winning them back to brands will be expensive.
