Supermarkets' "obsession" with discounters threatens retail trade

04 April, 2014

Leading suppliers claim the major supermarkets’ “obsession” with discounters could risk the health of the sector if they fail to develop a point of difference in the face of growing competition.

One influential player told OLN commercial conversations with the big four – Tesco, Asda, Sainsbury’s and Morrsions – were increasingly dominated by discussions about its trading relationships with Aldi and Lidl, which are winning market share at their expense.

A source said: “The discounters have become a fixation with the supermarkets. It’s like an obsession. It’s the first thing they ask in meetings and often the main issue they want to talk about.

“A lot of the supermarkets are really struggling and, of course, there’s a great deal of pressure, but there is a risk that they will lose focus.

“It can’t just be about price, which could be a real threat for the trade’s sustainability.”

Another supplier warned the multiples were beginning to look out of touch in comparison to the discounters and needed to spend more time on their own strategies.

He said: “Buyers in the UK just don’t seem to understand that this is a global wine market. The discounters are organised, they have a structure and do what they say.

“The other buyers here are looking out of touch as they don’t operate in the same way. One producer was saying it had sent a sample to Aldi to arrive one Tuesday and had agreed a price by the Friday.

“He couldn’t understand why a supermarket buyer, who was sent the same sample, still hadn’t taken a position on it weeks and weeks later.

“Ultimately, the discounters are very efficient, they work off a 14% margin – about half that of the supermarkets. They also reserve and commit to volumes, so you know where you are and can plan.”

He added: “I understand that supermarkets need to adjust, and there’s a great deal of competition, but they need to work out a point of difference rather than following the discounters on price.

“The buyers tend to be risk-averse and not willing to take any chances.”

Stephen Springham, senior retail analyst at Planet Retail, said: “The big four are under a lot of pressure because there is no growth in grocery.

“The discounters are growing, so that’s fanning the flames, and there is a backlash from the supermarkets.

“To Aldi’s credit, it played a long game and didn’t make a profit here for a long time – and now its moment has come.

“It is a bit of an obsession with the supermarkets at the moment, but it will pass.

“The discounters are having an extended moment in the sun, but they operate at very low margins and have to be careful.”

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