European retailers to deliver a more localised offer over the next 10 years

The top grocery retailers in Europe will be further developing their propositions and operating models over the next 10 years to deliver a more localised offer to gain competitive advantage, claims Kurt Salmon Associates (KSA).

In addition, discounters such as Aldi and Lidl, who have reached saturation point in Germany, are looking to offer niche product groups, such as gluten free foods, and adding stationery, mobile telephone cards and travel services to attract the "modern" customer.

Over the past year, KSA has worked with the forerunners in the grocery sector in France, Germany and the UK and has brought together its findings in a new report. It concludes that while each of the markets is mature, the competitive landscape and consumer behaviours are very different so there is a huge challenge in exporting their propositions outside their own borders. As a result, competition will increase domestically and the gap will continue to broaden between the success of the market leaders and the contraction of the independents' and smaller retailers' market share.
"Successful grocery retailers are those that understand their local consumers, identify a clearly defined and differentiated product offering and customer experience and have the operating model to execute these consistently well," confirms Mathew Cushen, senior manager, KSA.

"A grocer such as Lidl in Germany can succeed with a basic transactional offer that is focused on price; while for others such as Morrisons in the UK, where price is always an important factor, others factors such as the assortment or service can create differentiation."

According to KSA grocers in UK and Germany are more advanced with customer insight and initiatives to develop customer experience, whereas in France there is currently far less of a focus in this area.

"As price competition hardens, this may need to change but currently apart from Casino, there is little sign of great innovation there," adds Cushen.
In addition, as pressure continues to find ways to lower operating costs, there will be a further push to reduce the labour bill, the second largest expense for any retailer after product. Traditional retailers could operate on a wage bill of 2-3% of sales that is typical of the German-owned discounters.
"There is certainly room for improvement in this area and for grocers to increase training so that staff are multi-skilled," adds Cushen. "Non- discounters could also learn more about stock systems and more efficient buying processes from discounters."
When it comes to productivity based on space utilisation, E Leclerc is particularly efficient, as are Aldi and Lidl where space generates 20-100% more than its competitors. In the UK, Tesco are Morrison are the leaders.

Last year, KSA researched more than 100 retail companies across the world, grocery and non grocery, finding two key elements that distinguished the leaders from the laggards. These were: a compelling offer and compelling customer experience.

"The leaders uniformly understood their customer and marketplace and were able to translate that into a distinct and compelling product offering that differentiated them from the competition. They also found ways to go beyond the competition in making the total retail experience, both in-store, and through other retail channels and touch points, as unique and meaningful as possible. Over the next 10 years, the challenge for grocery retailers, in particular, will be to take this to the next level," concludes Cushen.