While at face value the news that Sainsbury’s and Asda plan to merge is sending shockwaves across the industry, the sector has felt for some time a radical change was coming in fmcg retail.
The constant squeeze on margin across the entire supply chain means the eco system that retailers operate in simply has less profit available and, most importantly, customers have irrevocably changed the way they shop – smaller baskets and more frequent trips across a much wider portfolio of retailers.
Much has been made of the relentless growth of the so-called discounters (although customers just see them as supermarkets) and the envisaged big plans of Amazon, which is no doubt part of the future-proofing objectives of this merger.
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However, there are other big factors at play with Asda and Sainsbury’s customer base, caused by a proliferation of options across the ‘treat to healthy living’ spectrum and constant desire for quick and/or convenient solutions.
Supermarkets are now competing with restaurants and takeaways, as well as delivery services like Just Eat, Deliveroo and HelloFresh for food. Plus there’s the growing number of online category specialists like shaving clubs such as Harry’s – just one example within male grooming. They have amazing branding, attention to detail in their product and a customer proposition that focuses on quality, independence and a competitive price point.
Mike Coupe, CEO of Sainsbury’s, has re-assured employees this week that no stores will be closed and that the merger will realise compelling benefits for customers, including a 10% reduction in prices on top of each brand’s existing price strategy. There will be a cast iron business case behind this decision: the savings required and economies of scale will have to come from somewhere. Streamlining the logistics of the supply chain will only go so far before the usual ports of call to deliver cost savings are visited – headcount, stores and supplier terms.
Perhaps the biggest overall challenge is how incredibly insight-driven we are now as customers – we can check prices in seconds, access millions of product reviews from our peers and share our experiences and views about stores, brands and retailers in real time.
But this has also made us all more socially and environmentally aware than ever before. Who would have thought a year ago that we would be refusing plastic straws and worried about micro beads in the products we buy? A major retailer (or indeed any business) that doesn’t have the right product available at the right price in the right place, that cannot answer my questions or understand me as a customer (given the technology available to us) is increasingly hard for customers to accept.
These challenges do not go away for either business, just because there are merging and, in fact, become even more important. With two very different brand propositions and business models, understanding the new customer base created by this combination of major retailers and learning how to engage with them (at speed) will be critical.
Customers will observe closely, looking out for the benefits to them and to the world around them. How will they integrate their approach to insight from a technical perspective, for example – and ensure they are GDPR compliant by doing so? How do they price the Extra Special vs. Taste the Difference own label ranges (or do they share and swap)? Will Nectar be accepted in Asda in the near future?
A myriad of questions face this new business, its partners, suppliers and customers. If approved by the CMA, this announcement will represent a seismic shift in the UK retail sector. Whilst the opportunity to realise efficiencies to retain competitiveness in a challenging sector is understandable, the real size of the prize is to create a new retailer fit for the challenges and expectations of the 21st century customer.
Paul Hinds is senior VP international retail solutions at IRI