business news in context, analysis with attitude

by Michael Sansolo

Back in 1938, Winston Churchill wrote an amazing book bearing the title of this column today about his nation’s lack of preparation for the rising Nazi threat in Europe. So it’s amazing that the same title can easily be used to describe an apparent lack of readiness today in the UK’s retail environment.

Hopefully the same comment won’t be made of you or retailers in your area anytime soon. Sleeping or simply not watching developing trends in other markets leaves any business weaker.

The Private Label Manufacturers Association ran a brief interview on PLMA Live with Andrew Stevens, a retail analyst in the UK, who highlighted some amazing changes in the supermarket industry there. Stevens made a series of significant points that merit consideration.

Stevens detailed how Aldi and Lidl, two of the most powerful deep discount supermarket operators in Europe, have successfully invaded the UK. As Stevens explained, the invasion was enabled by the gloomy economic climate that’s existed since the 2008 financial meltdown. That has left a significant share of UK shoppers looking for ways to economize on food shopping.

With their heavy focus on price, Aldi and Lidl are grabbing market share, largely from Tesco and Morrison, two major retailers known for serving all segments of the population. Plus, both discounters are learning how to improve their stores and products to retain customers even as economic times improve.

As a sign of how differentiation strategies can succeed even against the discounters, Stevens says Wal-Mart’s Asda stores are holding their own thanks to an already established focus on price. Likewise, upscale retailer Waitrose is surviving with a very different group of shoppers.

But what’s so amazing is that Aldi and Lidl have a long history of using their pricing strategies to successfully grab market share throughout Europe. That raises the question of how the UK retailers were somehow caught unprepared. Were they convinced that market trends would be so radically different across the English Channel or, as Stevens suggested, were they sleeping?

In addition, when asked whether Tesco’s Fresh & Easy experiment weakened the UK’s biggest retailer, Stevens said it had, but not for financial reasons so often cited by many observers and so frequently written about here on MNB. Rather, he said, the US incursion distracted Tesco’s management from its core business and that contributed to the problems at home.

Stevens’ final point in the interview was the financial challenges of on-line shopping, a hot topic in both the US and UK. As he explains, on-line shopping is growing in popularity, but profitability is extremely weak. “It’s a service that everyone is offering, but (retailers) are essentially buying that market share by offering the service at a loss.” Without understanding the financial model, most companies can’t succeed.

On-line or in stores, he says, “The lesson for retailers is to keep it simple. You have to understand what your customers want. It’s a straightforward formula to get right…and too many overcomplicate it.”

It’s an amazing group of comments: keep your eyes on the horizon for potential threats; keep you focus on your core; and don’t underestimate the difficulties of new business ventures.

Oh, and don’t fall asleep. Change is all around and the only certainty is that more is always coming.

Michael Sansolo can be reached via email at . His book, “THE BIG PICTURE: Essential Business Lessons From The Movies,” co-authored with Kevin Coupe, is available on Amazon by clicking here.
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