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Grocery market in UK

Paper Type: Free Essay Subject: Marketing
Wordcount: 3857 words Published: 1st Jan 2015

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It is a fact that the last couple of years most of the industry and service sectors worldwide have lost their reliability on customers confidence. Fortunately, lately there have been some significant efforts by some industries mainly with the help of their major players (larger companies), to get back to the game. The industry sector that we are going to analyse is the food industry retailing in the United Kingdom.

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In order to help the simple reader to have a taste of what are the situations that occur inside the sector, we will provide some significant information’s about the size of the sector, the general activities taking place in it, statistics and forecasts and generally as many informations as we can to help him understand what’s happening inside the sector.

Size of the grocery market in UK

The calendar year 2009, the grocery market’s value was £146.3bn, an increase of 4.8% concerning 2008. For every £1 of food and grocery expenditure , 52p goes for retail accounts for in every . 21p in every £1 spent in food & grocery is spent in convenience stores.

Number of grocery stores in the UK

The number of grocery stores in UK is 92,796. There are split into four main sectors, which are defined as followed :

1. Convenience stores:

These are stores with less than 3.000 sq ft sales area. They are open for many hours during the day and their selling products that have at least eight different grocery categories, (e.g Co-operative Group, Londis, SPAR).

Traditional retail:

These stores have less than 3,000 sq ft sales area.This includes newsagents (selling confectionary, newspapers and tobacco), specialist off-licences,specialist grocers, food specialists (chains of bakers, health foods,butchers, etc.) and independent specialists.

Hypermarket, supermarkets & superstores:

In this category, we have the Supermarkets which have sales area of 3,000-25,000 sq ft ,Superstores with sales area over 25,000 sq ft and Hypermarkets with over 60,000 sq ft sales area.

All of them are selling a broad range and a variety of mainly grocery items. Non-food products are also sold in those stores (eg Tesco, Asda).

Online channel:

Here we have the category of sales via internet.

We must mention the fact that approximately 70% of sales are made in superstores and supermarkets. The remainder majority is accounted by convenience retailing, with traditional small retailers that account for only 7% of sales.

Table 1 provides a breakdown by category.

Table 1 UK Grocery Retail Sales by Category, 2009 value


food and drink

£ 91.6 bn

62.6 %


£ 16 bn

11 %

non-food grocery

£ 23.5 bn

16.1 %


£ 15.2 bn

10.3 %

Total retail sales through UK grocery outlets

£ 146.3 bn

source: IGD Grocery Retailing 2009

As we can see from table 1, food and drink are by far the category that is consumed more by the public. What is really interesting and for that reason we provide Table 2 is the increase of non-food grocery category by the amount of £6.5 bn (38%) from 2005 to 2009. It is also very important the fact that there has been a general increase of the total retail sales through UK grocery outlets by 21% in that period of time.

UK Grocery Retail Sales by Category, 2005 value


food and drink

£ 78 bn

65 %


£ 12 bn

10 %

non-food grocery

£ 17 bn

14 %


£ 12 bn

10 %

Total retail sales through UK grocery outlets

£ 120 bn

source: IGD Grocery Retailing 2005

Value of sales

Continuing the above, we add the fact that through grocery, outlets have increased by 3% per annum in real terms over the last 10 years. This growth reflects rising non-grocery sales and higher average spend (i.e. better quality or ‘premium’ food, more convenience purchasing etc).

UK Grocery Market Performance

Grocery market performance. Source: IGD Research 2009

As we can observe from the diagram above, year by year there has been an improvement on the UK’s Grocery Market Performance. Some of the multiple reasons that we present here is first the fact that demand and technological trends have reinforced each other. Larger stores with a wider product variety and range have encouraged customers to make larger and less frequent shops. Also, the technological improvements (i.e. checkout scanning, stock control, longer shelf-lives, fresh produce) have further reduced the costs and attracted consumers. Loyalty card schemes have indeed given retailers a new insight into consumer preferences as well as managed to enable them to get more involved into product development.

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Aggregate Market Share

The diagram below shows the larger groceries in UK, according to their share in the domestic market. Tesco currently has a steadily and commanding increasing of slightly more than 30 % share of the non-convenience grocery market in the UK. During the 1990s, Sainsbury and Tesco enjoyed analogous market shares (of 20 to 25 %), however Sainsbury has lost a lot of ground since.

Number of employees

Employment in food & drink retailing exceeded the number 1.2 million of employees in December 2009. This number aproaches almost 5 % of the employees in the UK. Over 60 % of the employees were either part-time or female employees (45 % were both female as well as part-time occupied).

Profit Margins

Supermarket profit margins range typically between 2% and 6%. According to Food Industry News, (just-food.com, 2010), the beginning of 2010 for the UK grocery retailing group were “much improved” in comparison with last year. More accurately, there was a 4% rise on grocery sales in relationship with 2009. Group revenue from ABF’s (Assosiated British Foods) continuing businesses was 17% ahead of the same period last year. The matrix below shows the sales and the profit margins for the year 2009 for the UK retailers.

source: DTI Added Value Scoreboard 2009


Circumstances look set to remain really challenging for retail throughout 2010. Verdict is forecasting growth of just 1.3% for 2010, the second smallest growth rate, following 2009. Verdict is predicting a low growth in retail sector over the next couple of years, as the impact of the recession continue to be felt by customers.

Food inflation continues to ease in Q1 2010, at 1.7%, compared to 8.9% in the same period a year ago. Inflationary pressures are subsiding due to falling commodity prices, less seasonal price fluctuations and price competition within the sector. In fact, we are forecasting food inflation of 1.9% for the year, down from 4.4% in 2009.

Major Challenges

Establishing an Online Grocery

One of the major challenges that food retailing industry is dealing with nowadays is the online grocery market.

The Internet grocery market is an extension of the home-shopping philosophy. It is a sector that has already demonstrated considerable growth and that promises further substantial increases in the future. Online grocery sales in the UK are expected to double by 2014, according to researchby industry analystsIGD (just-food.com, 2010). Internet sales across many product sectors have achieved – and continue to achieve – high annual growth rates in the UK. Indeed, consumers’ passion for and propensity towards purchasing items online show no sign of abating. Last year, 13% of adults shopped online for groceries – an increase of 63% on 2008, according to the IGD data. UK consumers will spend GBP7.2bn on food and grocery shopping online by 2014, nearly double the figure for 2009, IGD supports. For retailers, the online option provides a new channel through which to sell their products, display a wide range of items to their customers and develop their share of what continues to be one of the fastest-growing sectors of the grocery market. Internet grocery, offers to the consumer, a variety of options and a number of advantages: It enables them to view a wide range of products, to compare prices and to arrange delivery at a convenient time. From the moment that these options and these benefits are appeared to the consuming public, a necessity is created for the food retailing sector and more specific for the large supermarkets to respond to this major challenge.

The Internet or online grocery market in the UK is dominated by four of the UK’s major supermarket chains – Tesco, Sainsbury’s, ASDA and Waitrose – and by a fifth supplier, Ocado, which is a warehouse-based online operation and a partner distributor to Waitrose. Outside of these five major suppliers, the market is mainly populated by a wide range of niche, specialised retailers, many of which offer products that are not always available in the major supermarkets. Apart from the five leading online suppliers, no other supermarket chain in the UK operates in the online grocery market – not even Morrison’s, which is the fourth-largest supermarket chain by market share.

The way UK’s retailing sector and its marketers are responding to this major challenge, is -as we have just mentioned- by setting in the front line it’s Supermarket and hypermarket chains to create a profitable and competitive online grocery. Tesco, leading the online offers in the domestic market, provides a variety of benefits that the customer-member can enjoy. Visiting the company’s site (www.tesco.com) we can find not only everything that is related with food-product variety and prices, but also a number of other services (non-food) like books and entertainment, clothing, mobiles and a number of banking and insurance services as well. This way, the consumer can be informed about any price of the product that he is interested on buying and calculate the exact total amount of money needed for his/her supermarket expenses, rather than making an off-hand calculation in the duration of his/her shopping. Also, the non-food services create the feeling of a complete market in which the consumer can find almost everything. A similar approach is been followed by the other supermarkets too.

Another innovative way that the British grocery has invented is the club-card. This card is provided to every customer-member of a specific supermarket, either by registering online or by simply asking to the supermarket to provide him/her one when he/she visits the supermarket for shopping. That way, every time the consumer buy’s a product, a small amount of money is been credited in his account with the form of points, and after a predetermined period of time -when a number of points is collected-, a letter arrives to his address informing him that he can exchange the number of points with a number of products depended on his decision (i.e. a voucher of 10 pounds for consuming products), or with a number of gifts that the supermarket has decided to provide (i.e. a T.V. set for each consumption of products, valued above 500 pounds ).

Home delivery, is another very important benefit of services that the online grocery provides. Throughout a wide variety of products that the consumer can find on the web-site of every online grocery, he can order the desirable products and have them home delivered in an exchange of a small amount of money (usually 4-5 pounds). That way he can save a lot of time from going to the supermarket, waiting in the queue and carry all those bugs to his house.

In addition, exclusive research commissioned for this report showed that 17.8% of all respondents purchased groceries via the Internet at least once in a year, with 3.8% making online purchases at least once a week and a further 2.4% making them two or three times a month. One in 20 respondents said they purchased groceries online once a month. However, almost a third of those who said they bought groceries via the Internet agreed that, due to the recession, they had reduced the amount they usually spent on online grocery purchases.

The recent focus of the five major online grocers has seen them expand their distribution networks, improve their stock availability levels and enhance the functionality of their websites. However, in the current recession, other factors are now being given more attention – particularly price competition between the sites, which is becoming increasingly important. In addition, environmental issues have become more significant. For example, the leading suppliers have introduced measures to reduce the number of plastic bags used for home-delivered orders and to use more fuel-efficient delivery vehicles.

As at December 2008, the UK had the fifth-highest number of broadband subscriptions among the Organisation for Economic Co-operation and Development (OECD) group of countries (and the third-largest number among the European OECD countries). These high broadband connection rates have enabled the UK to become a leading centre for online sales in general, and for online sales of grocery products in particular. Plans have been outlined to construct a super-fast broadband network across the UK, and this should in turn allow the online grocers to develop new website designs and technologies in order to take advantage of such developments.

Key Note forecasts that in the 5 years up to 2013, the UK Internet grocery market will continue to demonstrate high annual rates of market expansion and to account for an increasing proportion of grocery sales overall. The value of the Internet grocery market is projected to more than double by 2013, compared with the size of the market in 2008.

Promoting Sales of Healthy Brands

Another great challenge for the British food retailing sector -in order to maintain its position, its good reputation but also to increase it – is to promote the sales of healthy strong brands. But what is a healthy strong brand and what are the key points for the marketers for energizing a healthy brand?

A healthy and strong brand generates more results than just bigger sales. It sustains a product over time through consistency and excellent communication, providing at the same time value to its target customers. It is based on a proposition of genuine substance and value to the target customer. It wins, builds and retains customer loyalty and also maintains its relevance over time by evolving in response to changing customer expectations and perceptions. It creates a competitive advantage, increases the profitability of the business and also it is consistent with the business strategy. It provides a protective for growth strategies but also tries and most of the times succeeds to become a barrier for new entrants or substitutes to the market. Ways of succeeding some of the above goals we are providing to the following paragraphs.

Trust is one of the drivers of brand credibility. It’s an intangible that overrides the importance of any product, service or experience. Yet, as we have mentioned in the beginning (the latest years most of the industry and service sectors worldwide have lost their reliability on customers confidence), trust has eroded. In order for a company to gain customer trust is first of all to be simple and don’t give great promises that could be proved untrue or impossible to be realised. Of course every promise must be kept. Going forward, trust is growing in importance, to become one of the most important and sustainable competitive advantages an organisation can own. If a brand and its marketers follow that strategy combining with being close to the customers, the long term affects could be unpredictably well.

Adding value to the brand is in our opinion also a major factor to the sales promotion of a healthy brand and in order to achieve this we need what we call innovation. Imagining and creating new value requires seeing what others don’t. In a food retailing sector, innovation could be achieved either by influencing or shaping the company’s vision, or to inspire to come up with a new business concept, an entirely new venture, or a new brand. vale edo mia kainotomia ton supermarket morrisson. Other innovative ways could also be the addition of a new product, service or experience for a certain customer segment or the effort to speak the language of those consumers already “living” a trend so they can produce new products adjusted to the new trends and needs.

The goal of any organisation is to create sustainable competitive differentiation, by providing to customers what they value and want in ways that others can’t. One way to beat competition, according to Kim and Mauborgne in their book Blue Ocean Strategy, is to stop trying to beat the competition. Instead, create uncontested market space to create and capture new demand. Thereby, the competition becomes irrelevant. The classic example of creating a blue ocean (referenced in their book) is Cirque du Soleil. From a group of 20 street performers in 1984, Cirque is now a major artistic entertainment company delighting almost 90 million spectators a year. The company looked at traditional circus acts like Ringling Brothers and transformed them into “Broadway meets artistic music and dance” experiences. While increasing customer value and ticket prices, they simultaneously eliminated the largest cost items of the circus, including the star performers and animal shows. This is an extremely good example of how health brand marketers managed to create an uncontested market space.

Finally, we can support that the more you know about your customers as real people – looking beyond their obvious needs to their hopes, dreams, fears and challenges – the more you can help them achieve. In return, you will have customers who become enthusiastic fans of your organisation. The most significant method that should be used to achieve this is through the social media and its ways. Social media has really changed the way brands are connecting with their customers. More and more companies are starting to realize the value of social media and are quickly adapting this new form of communication. However in order to have a successful social media strategy, it is important to have an internal culture that is ready to accept and learn. Some effective ways to achieve social media method are the following:

1.Internal engagement. Internal engagement gives employees, the ones who power your brand, the chance to shine. One of the best examples is Best Buy Connect. Best Buy has been a brand at the forefront of social media, using blogs, social networking tools, forums, and video to build brand awareness and keep consumers up-to-date with Best Buy News. Best Buy has given people a platform to share and discuss technology and tech-related products. In this platform, someone can find “Product Discussions” and discuss topics like Computers, TV, Gaming, Appliances, Audio, Cameras, iPods, Mobile Devices and more. They also have a section for “Customer Service”, “Reward Points”, and “Meet the Moderators”; who by the way take the time to make sure the forum is a stimulating environment where there are valuable conversations.

2. Collaboration. Another very important technique is to create mechanisms for customers to influence your products and services. The best example here is Dell’s IdeaStorm. Through this innovative website-idea of Dell the visitors-customers of the website can view all the posted ideas from the community, post their ideas for Dell products or services, promote or demote ideas by voting, or seen their ideas become a reality by sending them to authorised people of the company who examine them and if there are eligible they make them true. By surfing a little bit on the web-site, we found some amazing informations like that people who where participating to this web-site have contributed 11,790 ideas, they’ve posted 84,546 comments and the site has been promoted 667,054 times. Most important, Dell has implemented 337 ideas based on customer input.This web-site provides a real contact with the customer. It is a web-site where everybody’s ideas reign.

3. Authenticity. Hear we provide an excellent example where Mayo Clinic (One of the best clinics in the USA) keep their customers (old people in this specific example) happy by buying them a piano. In the video that we are referencing, someone can really see the happiness on their faces when the old couple is playing the piano.

4. Feedback. Some companies lately have created a site that really communicates with the customers. An expert daily replies to a number of customers through twitter or other similar methods where he really helps them with any kind of problems that they have or answer to any possible question. ComcastCares is a very good example to describe such a situation.

5. Participation. My Starbucks Idea is a web-site that Starbucks has created where they have pursuit their customers that they know better than anyone else what they want from Starbucks. There, people are able to share their ideas, express what they think of other people’s ideas and join the discussions.

Finally experiences (create new ways of delivering experiences that fit with their lifestyles),

conduit (allowing customers to share with each other through you rather than driven by you) and sharing (allow customers to share their ratings) are some supplementary methods that can be considered as effective ways to achieve social media method.


As we have seen so far, there has been a significant effort with a variety of ways -by the food retailing sector in Britain- to attract their customer confidence again. In our opinion, the approach that overrules every other method is the fact that the new strategy includes the customer as a real part of the organisation or the sector. This new era, sets the customer in the top of the pyramid making him the one who takes the basic decisions of what he really needs and giving then the green light to the companies to make it true. When people feel like they matter to the company, and when you engage them in ways they value and want, they’ll matter more about you. This way, company and customers are acting no more individually and rivalry to each other. On the contrary, they move hand by hand on the same side of the river trying to accomplish the best outcome for both of them.

Once again, the forecast predicts rise tade% until 2015

Finally, if the online grocery continuous this way, it will give more push to the top


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