Tim Downs, director of Aberfield Communications, looks at the Big Four supermarket brands and argues that the knock-on effects of the current retail climate will be damaging for UK consumers.
I wrote last year about the problems that the big four supermarkets are facing from changing consumer habits and the rise of the discounters. I also predicted that there was the potential for a major casualty if they didn’t adapt to those changing habits and the market forces at play.
Excluding Tesco’s ability to compound its problems with some spectacular self-inflicted injuries, the biggest casualty so far has been the removal of Dalton Phillips after five years at the helm of Morrisons, following another “disappointing” Christmas.
With only Asda left to announce its results and despite president Andy Clarke hailing “record footfall”, all of the main supermarkets are expected to post a decline in like-for-like Christmas sales.
Whilst all this is going on consumers have never had it so good. Prices are tumbling, weekly shopping bills keep falling and we seem happy to think of Aldi and Lidl as the plucky underdogs fighting against the big multi-nationals, despite them having combined sales of around £10bn.
But this isn’t a new story, it’s been dominating headlines for over 12 months. What is noticeable in the way the woes of the big four are reported and commented on is the complete lack of sympathy for them as employers, as businesses or as an industry.
If any other UK sector were facing similar pressures questions would probably have started to be asked in Parliament and arguably you could see this becoming a hot election issue.
It’s easy to think that the big four have had it coming ahead of what is already being heralded as UK retailing’s toughest year yet, but the knock-on effects of the current climate will be far-reaching and ultimately damaging to many UK consumers.
Asda has announced a ‘management restructure’, with lots of very senior roles and people disappearing, Sainsbury’s is cutting 500 jobs from its store support centres and Morrisons is closing 10 stores.
Unfortunately this will be the tip of the iceberg. It’s estimated that the brutal price war we are witnessing has put more than 100 food and drink businesses at risk of collapse, with the number in “significant distress” increasing by 92% in the last quarter of 2014 according to a report by Begbies Traynor.
With 3.6 million people employed in the UK food supply chain this has the capacity to become a real crisis for the UK economy.
Alongside this the rate at which the retailers are building new stores has slowed dramatically, having dropped by 20%. There are only 2.8m sq ft of new stores actually under construction, leaving 43.81m sq ft of land owned by the supermarkets which is currently unused. That is not healthy for the UK construction industry, again affecting employment.
So whilst we might be congratulating ourselves on our canny consumerism and ability to get more for less, which in some respects is a monster of the supermarkets’ own creation, the influence of our price-conscious decision-making is having a huge effect on the wider economy.
Unfortunately, while the economic picture remains unstable and with salaries and disposable income unlikely to change dramatically, there isn’t a solution on the horizon, but we ought to be aware that our desire to chase the cheapest now might ultimately damage the position of consumers in the long run.