What went so badly wrong that Kwik Save should have slumped from being FTSE 100 stock to its current state of near-collapse?

It is with a good deal of sadness that I read recently about the likely demise of Kwik Save. With no stock on shelves and staff getting abused by customers, there seems little hope of a happy ending. The story made me wonder just how the star had fallen so far of what was once a FTSE 100 stock.

In the early 1990s discounters enjoyed their halcyon days. The big four had grown enormously in both sales and profits through the 1980s with their yuppie excess. They spent too much time worrying about where the next strip of land for another superstore was coming. They spent too little time bothering themselves with competing penny for penny on basics with Kwik Save, and the "harder" discounters (Aldi, Netto and co) from Europe. Into the teeth of the John Major recession, this was inappropriate, and the discounters made great strides in market share, Kwik Save showing strong profit growth too.

But the big boys took action. The introduction of Value lines by Tesco and then the other majors was arguably the beginning of the end for Kwik Save. These products were aimed at closing the price gap with the discounters on own-label products, and in tandem with a greater diligence on branded product pricing, they took away the discounters' unique selling point: price.

Kwik Save's status as a "soft" discounter (ie it had a wider range of goods than an Aldi or a Lidl, especially in fresh, frozen and branded areas) left it exposed. It wasn't a full range supermarket, but it wasn't a rock bottom hard discounter either: it was neither fish nor fowl.

The merger with Somerfield was ill starred: switching stores from one brand to the other didn't work, and placing Somerfield product in Kwik Saves (and vice versa) just confused customers.

Kwik Save tried to go upmarket (focusing on convenience) but didn't reinvent itself sufficiently, and with store disposals and changing fascia to Somerfield sapping the buying power so crucial with suppliers, the vicious circle had taken hold.

Now it appears that Kwik Save is to become a brand name of the past. Bills are being ignored and stock is absent from the shelves. Kwik Save's lack of a genuinely defensible niche is going to prove its downfall. Other grocers take note: create a genuine USP. If you can't defend your territory, the pressure is only going to build. n

Jonathan Pritchard, Partner, Oriel Securities