16
|
THE INVESTOR
Consumers are increasingly looking to new ways to buy their goods,
with retailers learning to adapt and ensuring that online pays
By Joanne Hart
Waitrose charges nothing at all if customers
spend £50 or more, and Ocado, which
operates purely online, charges negligible
amounts for its services.
Ocado was the best-performing stock in
Europe last year, as its shares soared from
84p to 452p – and the price has continued
to appreciate in 2014, highlighting investor
enthusiasm for the company’s concept. But
the group struggles to make a pro t and
delivered a pre-tax loss of £5.1 million for
2013, before the e ect of exceptional costs
for advisory fees and distribution centre
opening costs.
‘Ocado is very e cient, so the fact that it
is loss-making shows that the online model is
very expensive,’ says Andrew Stevens, senior
analyst at retail consultantVerdict.
Ocado uses so-called‘dark stores’, which
are sites dedicated to online retailing.Most
conventional retailers use a combination of
SUPERMARKET SWEET
One of the most perplexing conundrums of recent
times has been the growing popularity of discounters
Aldi and Lidl, even as more affluent stores, such as
Waitrose and Marks & Spencer, have outperformed.
In the three months to 3 February, for example,
sales at Aldi and Lidl rose 32% and 17% respectively
1
.
Analysis from think tank, the Resolution Foundation,
helps explain discounters’ popularity: it shows that
one in five UK workers earns less than £7.50 an hour
and that the median wage for employees fell almost
8% in real terms to just £21,900 from 2008 to 2013
2
.
‘People are still looking for ways to manage their
budget.Aldi and Lidl have also improved their range
and have invested in their stores,’ says Richard Lim of
the British Retail Consortium.
Waitrose has also done well, however. Its recent
sales were up 5.6%
3
, comfortably outstripping the big
four retailers and boosted by rising high-income jobs
in areas such as business services and IT
4
.
‘More affluent shoppers have been less hard hit
and they are the ones who tend to useWaitrose and
M&S.Also, people may be going to these stores as a
treat,’ says Andrew Stevens of Verdict.
The growing disparity between rich and poor in the
UK may mean continued sales growth at the top and
bottom end of the market. But, despite recent trends,
Aldi and Lidl account for just 7.3% of the total market
between them, whileWaitrose has a 4.9% market
share
5
. It is not yet time to write off the big four.
1, 3 & 5 Kantar Worldpanel Grocery Market Share UK
2 & 4 Resolution Foundation:The State of Living Standards
SECTOR WATCH
FOOD RETAIL
B
ack in the 1990s, the big food
retailers –Tesco, Sainsbury’s,
Asda and Morrisons – focused on
large, out-of-town sites.
Consumers preferred doing their
weekly shop in one place where parking was
easy, choice was immense and they could pick
up clothes, electrical goods and household
products at the same time.The internet and the
economic downturn have had a dramatic e ect
on those old consumer preferences.
‘The food retail industry has changed
more in the past ve years than it did in the
previous 50,’ says Richard Lim, an economist
at the British Retail Consortium.
Jonathan Pritchard, retail analyst at Oriel
Securities, adds:‘Shopping habits have
changed. Many people now prefer to use a
combination of the internet and supermarket
convenience stores, where you tend to buy
less and waste less.’
Reducing both waste and average spending
are attractive concepts when household
budgets are under pressure, which is why
convenience stories are growing fast. For
example, inTesco’s most recent results, it said
convenience stores represented around 30%
of net new space. Sainsbury’s, meanwhile,
is adding two new convenience stores every
week and says this sector is generating the
strongest returns in the group
1
. Frequent
visits to convenience stores dovetail neatly
with the growth in online shopping.
‘Online grocery shopping is growing at 15-
20% per annum and we expect it to account
for 10-12% of total sales by 2020,’ says food
retail analyst Clive Black of Shore Capital.
The surge in popularity of e-commerce
has arisen as grocers’ websites have become
more user-friendly, while smartphones
and tablets have made online shopping
increasingly easy.
‘There is huge potential for growth, and we
see the trend in online food shopping growing
as companies invest more in their operations
and add more delivery times,’ says Lim.
Being able to pick food online and
have it delivered to your front door may
sound attractive to the average time-poor
consumer, but it poses a serious challenge for
the supermarkets themselves.
First, companies have to account for the
cost of selecting customers’ groceries and
delivering them. Keen to lure consumers
to their sites, delivery costs have become
increasingly competitive.Tesco andAsda
charge £7.50 and £8 a month respectively,
