Differentiating to the Same Place
After years of beating the drum about how low their prices could be, Britain's supermarkets are finding that they have a significant number of customers willing to pay a little bit extra to ensure that they are purchasing high quality food.
Sainsbury's unique selling point in its competition with Tesco and Asda has always been quality. Now, it seems, more shoppers are buying the quality message and realizing that it comes at a price. All three chains, as well as smaller competitors Morrisons, Waitrose and Marks & Spencer, are responding to demand by re-launching and increasing their premium ranges.
According to Patrick Mitchell-Fox, a senior business analyst at the Institute of Grocery Distribution (IGD), "Retailers that are not involved in the premium market are now the exception rather than the norm."
True as this may be, there are still plenty of customers looking for those everyday low prices to which they have become accustomed. So where does this leave manufacturers and retailers? Assuming that none are willing to back out of a large, and growing, section of the market, how can they differentiate themselves?
Competition is likely to get even hotter but in a wider range of categories. After years of cutting prices, retailers may not be able to comfortably inch their way back into the hearts and minds of middle income families without losing the market share they have so painfully won. More to the point, shoppers may not accept a mixed market place, with middle and lower income customers walking the same aisles and all lining up at the checkout.
The increasing discrepancy between middle class consumers wanting to know more about their food and being willing to pay higher prices for quality may force retailers into differentiating by fragmenting into formats that serve customers at polar extremes.
A similar scenario has played out in the U.S. where many grocers have gone more upscale. Softer lighting, European-style fresh food departments, wider aisles, greater selection of organics, prepared meals etc. have helped to convince many they are shopping in a store that addresses their lifestyle needs. Chains such as Wegmans, Ukrop's, Raley's and others have always followed this path and now numerous others such as Safeway (Lifestyle format), Delhaize (Sweetbay and Bloom), A&P (The Food Emporium) are moving in a similar direction.
On the other end of spectrum, chains such as Aldi and Save-a-Lot have gone a fairly bare bones route with an emphasis on private label to help them compete with price-first businesses such as Wal-Mart and major players in the dollar store channel.
Discussion Questions: How can retailers, particularly those operating in the grocery channel, differentiate from one another when so many are moving away from the middle to either a more upscale or extreme value position? How is this shift away from the middle affecting the food and non-foods manufacturers who sell to these businesses?