Reports. Aldi meets Amazon. Digitalisation & Discount Retailers: Disruption in Grocery Retail

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Alan Booth
6 years ago
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1 Aldi meets Amazon Digitalisation & Discount Retailers: Disruption in Grocery Retail

2 Introduction Like many markets, grocery retail is going through rapid digitalisation. This report, based on data from YouGov Profiles, shows how grocery retail will develop and what brands must do to increase their market share. Part 1: Grocery retail is attractive but changing Part 2: Discounters and online-retailers have the potential to shatter the market Part 3: Focus on what your customer wants You need to know who your customers are You need to know which customers are crucial to the future of the market Be aware that there are still obstacles that online grocery retailers have to overcome 2 Understand that digitalisation brings new opportunities and challenges

3 Use picture to take up dark grey space Part 1: Grocery retail is attractive but changing 3

4 Grocery Retail is an attractive and growing market but very competitive Annual value of the grocery retail market in the UK from 2011 to 2021 Many grocery retailers are competing for market share (in billion GBP) 1 19% % Four major retailers are currently in the leading positions (2015)² 13% 13% % Tesco Sainsbury's Asda Morrisons Others 4 Source: 1 ²

5 But discount retailers such as Aldi and Lidl are having an increasing impact on the grocery landscape in Great Britain Aldi and Lidl have doubled their market share from 2011 to 2015, whilst the big four are losing market share 1. Changing shopping habits and additional macro-economic factors have added to the success of the discounters like Aldi and Lidl. 29% 34% 35% 2% 12% 14% 15% 3% 3% 5% 4% 10% 10% 13% 13% 13% 13% 6% 30% of British customers use discounters at least once a week 2. 25% 22% 19% Tesco Sainsbury's Asda Morrisons Aldi Lidl Others The 30 % of British customers regularly using discounters has affected the whole market leading to margin decreases at traditional supermarkets like Tesco, Sainsbury s, Asda etc. which are under heavy price pressure. 5 1 Source: Base: Nationally Representative GB adults aged 18+

6 In addition, ordering online at traditional grocery retailers has become common place but there is still room for growth You said you have ordered food or personal products via an online supermarkets/ online only supermarkets. Which of the following brands have you ever used? (Top 5) 2 46% have already used online grocery retailers at least once. Tesco 72% Saisbury's 51% Asda 48% Online accounts for only 6% of the whole sales of the grocery market in the United Kingdom 1. Boots 29% Morrisons 24% 1 Source British consumers stick to shops they go into on a regular basis when ordering food online. 6 2 Source YouGov Profiles Base: Nationally Representative GB adults aged 18+ Base: GB adults 18+ that use online supermarkets/ online only supermarkets

The market is still changing and customer shopping behavior is changing too Use picture to take up white space 75% say that they use a certain shop type more or less often compared with two years ago.

7 The market is still changing and customer shopping behavior is changing too Use picture to take up white space 75% say that they use a certain shop type more or less often compared with two years ago. 57% say that they will use a certain shop type more or less often within the next two years, compared to what they do now. Retailers must reflect and respond to this development, otherwise they will not benefit from this ongoing change. 7 Base: Nationally Representative GB adults aged 18+

8 Use picture to take up dark grey space Part 2 Discounters and online-retailers have the potential to shatter the market 8

9 Due to digitisation, grocery retail will change fundamentally because it offers new benefits for customers They rate the following aspects positively: 46% have already used an online supermarket or an online only supermarket 83% 32% Convenience Punctuality of delivery and they really liked it. 79% Choice of products 9 Base: Nationally Representative GB adults aged % Quality/ condition of products Base: GB adults 18+ that use online supermarkets/ online only supermarkets

Discount retailers like Aldi put additional pressure on prices and margin and are speeding up this change 57% say that discount supermarkets (Aldi, Lidl) are just as good as the others (Tesco,

10 Discount retailers like Aldi put additional pressure on prices and margin and are speeding up this change 57% say that discount supermarkets (Aldi, Lidl) are just as good as the others (Tesco, Sainsbury s, Asda etc.). Without any other perceived differences, a smaller price will always be a decisive factor. This will lead traditional supermarkets to decrease their margin as well to be competitive. This fight for the margin will affect the whole market; traditional retailers will have to find other ways to differentiate themselves from discounters: offering customers a special shopping experience, occupy new niches or provide additional benefits. 10 Base: Nationally Representative GB adults aged 18+

11 If there are any firms that meet customer needs better, the existing structure will be shaken to the core even for established grocery retailers Just because Tesco, Sainsbury s and Asda are the leading online shops in grocery retail at the moment, it does not mean that they will remain so. This offers great potential for companies like Amazon and niche retailers that focus on certain products that meet the needs of the customers better. 40% say they do not buy from online shops that they also use in the real world. 11 Even Discounters can benefit from this development, since they already meet a major need: the price of the goods. Base: Nationally Representative GB adults aged 18+ Tesco, Sainsbury s or Asda do you want to know how your customers see this point in particular? Additional data are available in YouGov Profiles. For information click:

12 Discounters, digital retailers and disruptors need to adapt by focusing on the needs of their customers. This does not mean all online but digitalisation offers an opportunity for retailers to get to know their customers in more detail than ever before and therefore meet customer needs better. It will create value for customers: depending on their needs customer groups will need individual product choices, sales channels, and pricing strategies. Doing this will help your business. This is exactly what YouGov Profiles can offer you: Get to know your target group with our innovative segmentation tool in the detail that you need to know in order to strategically prepare your business for the future. Click: Let us show you how the power of YouGov data can help you to understand the upcoming challenges of the grocery retail market. 12

13 Use picture to take up dark grey space Part 3 Focus on what your customer wants 13

14 Overall, the most important demands of customers will influence the further development of the grocery retail landscape: Retailers need to focus on what the customer really wants How customers rank their main demands for food retail (% show how many put the respective item on rank 1): Price Quality/ freshness 44% 37% Convenience/ comfort 8% Choice of brands/ products Shopping experience 8% 2% 2%: Don t know. Price is the most important aspect for GB consumers, they rank this even higher than quality/freshness. Offering good quality produce with a fair price is crucial, it will therefore be essential for your business to focus on these two aspects and sacrifice less important factors to be competitive. 14 Base: Nationally Representative GB adults aged 18+

15 You need to know your customers as well as possible. Here is what is important to them. Price% Quality/freshness% Comfort% The price of products 65 Freshness of products 71 Proximity of a store 46 Low priced own-store brands 31 Products with certain labels or quality quality features features 20 Short queues 29 Coupons or store discounts 18 Freshly prepared food at the point of sale of sale 16 Wide brand network 14 Choice% Shopping experience% Largest choice possible of of food and personal andgoods personal goods Largest choice of other products Large choice of other products Competence/quality of staff Ambience inside the store The shown data are only a small excerpt of all available data. You can analyse the preferences and demands of your target group and find the most effective messages to use when advertising to them using YouGov Profiles. Smallest Smaller choice of of the most important important products products 8 Meeting other people 4 For information click: 15 Base: Nationally Representative GB adults aged 18+

16 Additionally, special demand for products in grocery retail is something you can now focus on in the course of digitalisation Food characteristics looked for % Sugar levels 43 Find your own niche: In times of digital transformation a deeper understanding of your target group via YouGov Profiles gives you the opportunity to occupy an attractive niche. Fat content 39 See the demands of customers of certain retailers: Origin Ethically farmed Waitrose Aldi Fair Trade / Ethical Sugar levels Fat content Locally sourced Fair Trade/Ethical 18 Locally sourced Origin 16 Base: Nationally Representative GB adults aged 18+ Ethically farmed

17 Differentiation is the only way As YouGov Profiles data shows, customer demands and needs are diverse. Digitalisation offers new possibilities to fulfil them for example, by providing a more convenient shopping experience and targeted and demand-oriented offers. Taking this into account, differentiation and focus based on detailed knowledge of the consumer and specific target groups will be the key to success. Two customer groups will be crucial in times of digital change: price driven customers and convenience seekers. 17

They show how pricing strategies work cross-channel: right now Discounters are very attractive for this group, but since online retail is very

18 Price driven customers are a group of pragmatic shoppers who make up a huge share of all customers 39% are price driven customers Customers who are focused on every aspect of the price dimension, and who do not value choice, comfort, or experience as much. They show how pricing strategies work cross-channel: right now Discounters are very attractive for this group, but since online retail is very good when it comes to low prices, their focus will switch: 35% say they will probably use discount stores more often in the future. 18 Base: Nationally Representative GB adults aged 18+

What price driven customers like: They are

with their family (72%) more frequently.

above 60,000 per year and are more likely

Take these brands into consideration more

19 What price driven customers like: They are more likely (20%) to be middle aged (35-44 years old) and female (56%). Nearly four in 10 (38%) spend between 50 and 100 on food and household goods per week. They say that they enjoy watching TV with their family (72%) more frequently. They are Less likely (13%) have an income above 60,000 per year and are more likely to be married (44%). Take these brands into consideration more often: : 19 Base: GB adults 18+ that belong to the price driven customers group

20 And how they shop: Almost half (46%) use discount stores today more often than two years ago, while only 10% are using them less often. They put great value on the largest choice of products (37%) and low priced own store brands (49%). 74% say they have a favorite brand, but if another brand is on sale they will buy that instead. They are more likely than the general population to buy milk, cheese and dairy-products (83%), bread (81%) and cosmetics (43%) on a weekly basis. For them there is not much difference between leading brands and supermarket own brands (69% vs 59%). When it comes to online shopping they are more likely to use: and less likely to use: 20 Base: GB adults 18+ that belong to the price driven customers group

21 Meeting the needs of price driven customers offers great potential for online retailers & discounters as well as challenges & opportunities for the traditional grocery retail market The use of discounters will grow rapidly within this target group, since discounters target the price aspect the most. This group will be enthusiastic about the new retailers coming over from mainland Europe with their focus on low prices which means price perception will be strongly influenced and lowered. Online will grow as well. As soon as online retailers offer the right discounts or bulk buying, this group will shift towards this sales channel. They will be especially likely to buy non-perishable goods which can be bought in bulk and therefore profit from coupons and other discounting. They will need to focus on the price sensitivity of this group and offer them good value for money or low priced own store brands. Even the competence of the staff could be key to retaining them for the long term. But in general, traditional retailers will need to focus and open up other target groups or differentiate their offers. 21 Base: GB adults 18+ that belong to the price driven customers group

The second group is crucial when finding out where digitalisation will lead 30% are convenience seekers For them convenience is the most decisive factor when

22 The second group is crucial when finding out where digitalisation will lead 30% are convenience seekers For them convenience is the most decisive factor when shopping or has became more important in recent time. They don t necessarily look for the best price, but if a retailer offers them a more convenient shopping experience they will prefer this brand. Convenience can also translate to an online experience and these consumers use online retailers more frequently. To offer this group a convenient shopping experience, retailers have to know as much as they can about their needs. 22 Base: Nationally Representative GB adults aged 18+

They consider brands like: Regarding their income they are close to the British average: a third of them as an yearly income between 25,000 and 49,999.

23 What convenience seekers look like: They are more likely to be female as well (57%), but they are more likely to be under 35 years of age (35%). They are more likely to be on Facebook (76%) and a reader of the Guardian (17%). And they are more likely to treat themselves to food that isn t good for them (73%). They consider brands like: Regarding their income they are close to the British average: a third of them as an yearly income between 25,000 and 49,999. You can analyse the key psychological traits of your target audience and find the most effective messages to use when advertising to them using YouGov Profiles. For Information click: 23 Base: GB adults 18+ that belong to the convenience seekers group

And how they shop: They often do not know what they will be buying prior to going shopping (43%) and are more likely to spend more than they intended to (41%).

Four in ten use discount stores today more often than two years ago, whilst nearly one in five (18%) are using them less often.

24 And how they shop: They often do not know what they will be buying prior to going shopping (43%) and are more likely to spend more than they intended to (41%). When it comes to online shopping, they are more likely to use shops with a lower price (46%) and put more focus on free delivery (26%). Four in ten use discount stores today more often than two years ago, whilst nearly one in five (18%) are using them less often. They are more likely to make frequent smaller shops on a weekly basis (78%). They are more likely to go in general to chemists (90%) and organic supermarkets (31%). 33% say that they buy at online shops they also use in real world. 51% would prefer online shops, were they can get the best deals. 24 Base: GB adults 18+ that belong to the convenience seekers group

25 Convenience seekers so far are linked to traditional supermarkets but won t hesitate to change their preferences Currently they don t differ from the norm: Tesco, Sainsbury s and Asda are their preferred online retailer. Since they are looking for the best deals and convenience, this doesn t have to be carved in stone. Offering a good online and offline experience will be key to success. There are still hurdles that stand in the way of meeting their need for convenience, but if, for example, same day delivery becomes more common, the online business is likely to grow. Discounters will also play a greater role in the future, since the convenience seekers are willing to use them more often. This offers opportunities but also challenges for discounters, since they need to adjust their online offer to be competitive and offer them a more holistic shopping experience. This group is pretty demanding overall, putting much attention on other factors, as well as offering them a good and convenient shopping experience: The proximity to the shop to their home and workplace, offering their preferred payment methods and short queues are important for them. Meeting these needs can be an important factor for traditional retail. 25 Base: GB adults 18+ that belong to the convenience seekers group

There is a big opportunity to grow online grocery shopping by increasing online frequency Almost every second customer uses online retail, but it it makes up only 6% of the whole sales of the grocery

26 There is a big opportunity to grow online grocery shopping by increasing online frequency Almost every second customer uses online retail, but it it makes up only 6% of the whole sales of the grocery market in the United Kingdom 1. The development gets stuck: Only 15% of customers use online grocery a few times a month or more often 2. Customers hesitate to spend their money frequently online. Retailers have to understand how this obstacle can be overcome and how to increase their digital business. 1 Source Base: Nationally Representative GB adults 18+

27 You also have to find out how customers satisfy their needs and which requirements are crucial for your online and offline-business tend to make impulsive purchases (41%) 30% agree that online shopping is cheaper than in-store shopping (29% do not agree) are more likely to stick to brands they like (25%) are more likely to have a lower income of up to 25,000 (35%) People with current online shopping experience People without current online shopping experience buy durable goods on a more short-term base are more likely to make smaller shops during a week (87%) are less likely to spend more than they intended (32%) 27 Base: GB adults 18+ that use online supermarkets/ online only supermarkets Base: GB adults 18+ that do not use online supermarkets/ online only supermarkets

28 And which obstacles are holding people back in using online grocery Top-10 obstacles: agree Online Online shopping is worse is worse because because I cannot I cannot see see or or touch/ touch/ check the products check before the products buying before them buying them I enjoy going to a supermarket store to shop Additional shipping costs are too high I do not trust the I quality/ do not trust freshness the quality/ of the freshness products bought of the products online (i.e. bought fresh online vegetables, (i.e. fresh bread, fruit) vegetables, bread, fruit) I don t like my shopping behaviour being monitored online I find minimum order portions are too large for me If I only shopped If I only online, shopped I would online, miss I would the social miss contact the social of shopping contact of offline shopping in offline stores in stores My favoured store/ brand does not have an online shop The The negative negative environmental impact impact of shopping of shopping online online bothers bothers me (e.g. me (e.g. additional additional transportation of products, transportation package waste, of products, etc.) package waste, etc.) In general, the delivery times on offer are inconvenient Online Customers Offline Customers In general, people with experience in online grocery shopping are less concerned across all measures. However, a significant proportion are highlighting that there are obstacles which explains why online grocery hasn't had its breakthrough yet. Shipping costs and minimum portions are particular issues for retailers to work on. 28 Base: GB adults 18+ that already did use online supermarkets/ online only supermarkets Base: GB adults 18+ that already did not use online supermarkets/ online only supermarkets

If online grocery retailers overcome those obstacles they will grow rapidly, current customers are satisfied and will spread the word leading to an upward trend in online grocery retail 92% of

29 If online grocery retailers overcome those obstacles they will grow rapidly, current customers are satisfied and will spread the word leading to an upward trend in online grocery retail 92% of current online grocery shoppers have positive experiences with online shopping. 48% of users of online grocers say that people ask him/her for advice before buying things. Due to word of mouth, your business will benefit from these positive experiences. If they are satisfied, they will certainly talk with their relatives, colleagues and friends about their experience and drive this development. 29 Base: GB adults 18+ that already use online supermarkets/ online only supermarkets

Digitalisation will bring new opportunities and challenges: Disruption

.. 33% can imagine ordering directly from the producer without being

Grocery retail is threatened by verticalisation: the online market

This is especially attractive to consider for example for brands,

30 Digitalisation will bring new opportunities and challenges: Disruption is further caused by new players... 33% can imagine ordering directly from the producer without being dependent on the retailer. Grocery retail is threatened by verticalisation: the online market will enable a direct connection between customers and producers. This is especially attractive to consider for example for brands, where the share of customers who want to buy directly is above the Nationally representative average: 42% 42% 39% 30 Base: Nationally Representative GB adults aged 18+

Disruption is further caused by new technologies Bild AI, Computergesteuert, irgendwas Automated reordering and artificial intelligence: Consumables can be ordered with a single click It may become

31 Disruption is further caused by new technologies Bild AI, Computergesteuert, irgendwas Automated reordering and artificial intelligence: Consumables can be ordered with a single click It may become the norm that fridges or pantries may order automatically Shopping lists might be created by online stores based on former purchases and personal preferences Only 15% say they would like to have products that they buy on a very regular basis ordered automatically as soon as they have used them up, indicating that this hasn t reached the consciousness of British consumers yet. 31 Base: Nationally Representative GB adults aged 18+

32 In this fundamentally changing market, a strong brand becomes more important YouGov BrandIndex can show you what people think about your brand: Online shoppers are more likely to be customers of whereas non online are more likely to be a customer of New online grocery retailers will have the chance to establish a brand that customers are attracted to. An established presence could become crucial in these changing times. If your brand stands for a certain product or a shopping experience then it will gain an important advantage. Want to learn more? Click: 32 Base: GB adults 18+ that already did use online supermarkets/ online only supermarkets Base: GB adults 18+ that already did not use online supermarkets/ online only supermarkets

33 Recommendations The market is changing: every retailer must embrace these changes, otherwise they will lose out. You must therefore know your target group in detail: how they shop and which aspects of the shopping experience are crucial for them. Think about customer needs and how you can fulfill them. Offer them the shopping experience they want. Overcome the most important obstacles to increase your online business and make gains from the new opportunities that digitalisation has to offer. 33

34 About YouGov YouGov is an international data and analytics group. Our core offering of consumer data is derived from our highly participative panel of 5 million people worldwide. For each panelist we have tens of thousands of connected data points so can answer the vast majority of research questions by interrogating existing data. Where we don t have the answers already, we can perform quick turn-around re-contact surveys for client specific research. 34

35 How YouGov can help you Through the continued expansion of our data suite, we are developing a complementary portfolio of proprietary decision-making tools and resources which can support media agencies and brands owners through all stages of the marketing workflow. For example, our clients can: Identify target segments through Profiles. Track brand performance over time with BrandIndex. Explore trends and marketing challenges through Reports. Do a deep dive through Omnibus or Custom Research to understand why consumer sentiments and indicators are changing. 35

36 Overview This report has been created using in-depth data and analytics collated using YouGov Profiles, YouGov BrandIndex and additional research using the YouGov recontact service. To create hypotheses to test with the large YouGov datasets and validate findings, YouGov interviewed a total of 2,177 GB adults aged 18+ between 25 th September - 27 th September YouGov Profiles is the YouGov connected data vault which holds 190,000 variables collected from the most active 250,000 panellists in the UK. YouGov have the same connected dataset in the US for over 200,000 panellists with 200,000 variables, and also in Germany with 100,000 data points for over 55,000 panellists. 36

37 Let us show you the power of our connected data and solutions. For a free, no obligation, demonstration please contact: David Ellis david.ellis@yougov.com 37

Driving Long- Term Trust and Loyalty Through Transparency. The 2016 Label Insight Transparency ROI Study

Driving Long- Term Trust and Loyalty Through Transparency The 2016 Label Insight Transparency ROI Study Executive Summary The Label Insight Food Revolution Study, released in June of 2016, found that consumers