Tesco, Sainsbury’s, and Morrisons have announced job losses in the thousands, citing various reasons. Morrisons outright blamed the government’s budget and Sainsbury’s indirectly blamed it, saying it will need to work with suppliers to keep prices down.
The budget has put a burden of millions on retail, and it’s very difficult to see how the government is pro-business as it ploughs ahead with further inflationary plans like DRS, EPR, increased alcohol duty, and the National Food Strategy. Business leaders see a world of pain ahead in trying to keep food affordable for a public whose pay rises, and job security, are hurt by the very same budget.
Whilst that’s certainly enough to set the hares running, competition has also played a part in the woes faced by the supermarkets. Bakery is a consistent casualty. The truth is that for the major multiples, bakery has declining sales and a high level of staff costs, which are predictably rising. Bakery is now highly profit-dilutive and becoming more so.
The loss of sales can be attributed to a squeeze between the top-end nationwide boom in artisan bakeries, making supermarket offers look tired, and a hot mid-to-lower-end offer from the likes of Lidl. Its bakery is a real destination driver for shoppers – so successful, in fact, that Aldi followed suit.
The major mults, meanwhile, are culling bakery. In doing so, they also compound their wider issue of differentiation from each other. Without clear differentiating levers, the major supermarkets blur into one another in shoppers’ eyes, encouraging more promiscuous shopping based on price. Even member pricing is becoming an even playing field, as more shoppers carry all the virtual member cards on their smart devices.
It’s little wonder that, as Tesco and Morrisons announce job losses in the thousands, Aldi is opening nine stores as part of its long-term ambition to create 3,500 new jobs in London alone.
A similar issue faces suppliers, who have also been hit by the budget. Brands face a challenge because, in the major supermarkets, they simply don’t help with differentiation. I would advise that they put creatives into each account team and set up internal walls to enable genuine account plans to move in different directions.
As regards discounter supply, they have less of a role and must accept copying is likely if they are popular. Note in Thatchers’ court win against Aldi, the lesson is to build a deep trademark moat around brands from the outset to protect assets from the now normalised practice of the discounters.
2025 will see the demise of one retailer: look no further than Asda. A Christmas horror show, with sales down 5.8% while the others all grew with a weighted average of 3.9%, has prompted Allan Leighton to act. He is bringing back Asda price, the very ground that was stolen by the discounters in the first place.
It’s a losing battle before it even starts. Watch as we witness its ‘death by a thousand cuts’.
David Sables, CEO of Sentinel Management Consultants
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