SA supermarkets can’t compete with UK and German chains
Although there are mixed signals emerging from the UK economic performance, retail sales are holding up well, if the findings of the Kantar World panel are anything to go by.
In its recently released analysis of fourth quarter supermarket trading (including the Christmas period), total supermarket sales rose by 3.8% compared with the same period in 2016.
With UK inflation averaging about 2.5%, this means that real growth is apparent in the food and grocery aisles. December 22 saw sales of £747m, putting it firmly in the history books as the busiest shopping day ever.
However, this broad figure masks some very important differences within the supermarket sector. Among the large established chains, Tesco was the clear winner, increasing its sales by 3% and leaving its main rivals — being Asda, Morrisons and Sainsbury’s — well behind, all on about 2% growth.
While Tesco will draw some satisfaction on easily beating its rivals, German discounters Aldi and Lidl make its growth look puny. Both these firms grew sales by 17% for the period.
Aldi and Lidl have no comparisons in SA. Selling a relatively limited assortment of predominantly private label goods in their no-frills outlets, they compete almost exclusively on price. It is fair to say that on a strictly comparative basis, prices at Aldi and Lidl are about 20% lower than in any of the traditional supermarkets. And while it took a bit of time for the British middle-income shopper to get over the perceived stigma of entering Aldi or Lidl, any such hang-ups have evaporated.
Aldi has about 7% share of the UK grocery market, while Lidl has about 5%. Although relatively small in comparison with the big four — Tesco on 28%, Sainsbury’s on 16%, Asda on 15% and Morrisons on 11% — both Aldi and Lidl are taking market share away from everyone and at these growth rates, it won’t be long before both are in the 10% plus market share bracket.
At a regional level, outside of the main metropolitan areas, the big four are also experiencing pressure from privately owned operations such as B&M and Home Bargains, both of which have recently introduced groceries to their long-established lines of general merchandise.
South Africans are unlikely to ever enjoy the benefits of ultracheap shopping as offered by the likes of Aldi and Lidl, for a few reasons. Firstly, profit margins among SA food retailers are extremely thin and are thus not attractive enough to entice discounters into the local arena. Privately owned Aldi and Lidl enjoy higher margins, even though they are discounters.
Secondly, supply line logistics in SA, especially regarding private label offerings are too tight to mention. Locally, Woolworths has for many years managed to capture most of the private label capacity in SA and that situation shows no signs of changing. And finally, from a geographic perspective, SA is just too far away from Europe, Asia or the Americas to make cheap importation of manufactured foodstuffs on a grand scale a viable option.
Spending several weeks in Scotland recently, I shopped in supermarkets across the spectrum. The following remark will attract the ire of local operators, but I have been consistent in my opinion that, at current exchange rates, I can comfortably fill a UK supermarket trolley with comparable manufactured foodstuffs and general household products for a great deal less than what it would cost me in SA. I must qualify this remark by saying that this excludes meat and alcohol.
I firmly believe the reason lies with the food and household product manufacturers, who appear unable, or too greedy, to produce competitive offerings.