Key Challenges and Issues Facing the Supermarket Services

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Supermarket Services

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The commodification of food, and consequent decline in profit margins, forces multiple retailers to diversify into products and services on which they can earn greater margins. In the past, supermarkets that ventured into services tended to offer ones that shoppers needed fairly often, such as dry cleaning and photograph processing, but the range of services has been expanded and, in 2007, Tesco was investigating entering the estate agency market, signalling a major extension of service portfolios.

Tesco is a trading portal for a huge range of goods and services. Sainsbury’s challenge to Tesco has revived, although the takeover bid for Sainsbury’s from Delta Two was a distraction in 2007. ASDA has also developed as a general trading company, but is more focused than Tesco or Sainsbury’s on low- to middle-income shoppers who want minimal prices on basics more than added-value services. Morrisons still focuses on selling food and household goods and has not introduced a wide array of services. The Co-operative Group rivals Tesco in the range of services offered and is a leader for environmental awareness and local sourcing, attributes that are of increasing importance to customers. Among the smaller chains, Waitrose provides financial and other services, benefiting from being part of the John Lewis Partnership retail group.

Convenience retailing, rather than expansion into a wide range of services, is the theme for Somerfield, Budgens and, increasingly, for Marks & Spencer, with its food-only outlets. Marks & Spencer has a financial-services brand, M&S Money, but this is owned by HSBC.

Care for the environment is a brand value that an increasing proportion of shoppers seek, especially affluent customers. However, for companies that attract shoppers across the income range, it will be hard to reconcile the demands of green shoppers with the budgets of low-income customers.

ASDA and Tesco both have substantial online grocery stores with home delivery. Sainsbury’s has ventured cautiously into online grocery retailing. Waitrose’s service, Ocado, is at the premium end of home deliveries. However, none of the chains deliver groceries nationwide. Deliveries are a valuable customer service, but more alternatives to home delivery, such as designated 24-hour pick-up points, would be helpful to customers who are rarely at home.

Supermarkets’ added-value services have had a small target market in global terms, confined to the wealthiest nations and to elite enclaves elsewhere. India has a protected retail sector which is very difficult for foreign firms to enter, but the Chinese market is more open. International supermarket businesses give customers continuity of supply, consistent quality and often low prices, but at the same time they can encourage shoppers to overspend.

Many households could not afford to spend more in supermarkets than they do already, as among the 40% of households with the lowest incomes, total spending often exceeds income by a significant margin. In addition, households carry a heavy debt burden. Time pressures on workers, extending up the age scale as more people work on beyond usual retirement ages, mean that shopping needs to be fast and stress free. An ageing population will be reluctant to keep pace with technological advances such as cashless shopping, but the database technology behind ventures such as Tesco’s Clubcard increases Tesco’s power as a trading portal, as well as opportunities for cross-selling.

Present trends include more local, one-stop and online shopping. Over the longer term, in response to scarce resources and the need to cut greenhouse-gas emissions, shoppers will focus on essentials, which they will want to buy locally, while they will use online shopping (often from supermarkets that have become general trading companies) for bulky and luxury items.

Stores not in residential neighbourhoods will need to become leisure and entertainment destinations to which people are prepared to travel for a day out.

Tesco has particularly exciting prospects because of its market dominance and expertise across services and formats. As at summer 2007, it appeared unlikely that the Competition Commission, after completing its review of the groceries market by May 2008, would impose any draconian restrictions on Tesco’s expansion. The Co-operative Group is also well placed for the future, because of its experience in local retailing and its track record of trading with high ethical and environmental standards. All national supermarket businesses will need flexibility to tailor formats and ranges to local needs and the scale to operate as general trading companies.

Supermarket Services

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