Too posh for Aldi?

Last week I was invited onto BBC Radio Manchester to discuss an online row that had erupted in the Cheshire village of Poynton about the opening of a new Aldi store.

The online discussion on the Poynton Forum – was started by Poytonman62 posting

“I thought we were making real progress as a community with the opening of Waitrose in 2012. However with the opening of Aldi I feel as though we are taking a step back into the lower class.”

Aldi and Waitrose are at very different ends of the grocery retail market – but both have a similar market share (around 5%). And both are growing at the expense of The Big 4 (Tesco, Asda, Sainsbury’s and Morrisons) because, love them or hate them, they have a clear offer. Aldi is cheap and Waitrose is posh.

In contrast, The Big 4 have created confusion around their brands – is Asda cheaper than Sainsbury’s? Are Tesco Finest dishes finer than Morrison’s Signature dishes? Consumers aren’t stupid – we know these items are often made by the same manufacturers and just packaged differently. Likewise we know some ‘deals’ do not always represent better value. For example, Sainsbury’s are dropping ‘buy two get one free’ offers because they are not saving people money – instead, these offers are just encouraging customers to buy more than they need.

Opinion as to whether Aldi is a good or a bad addition to the village of Poynton is clearly firmly divided with one online forum user (Anotherwhingerlikeu) saying “It has the feel of an indoor market area with a car boot sale in the middle”. But markets and boot sales are well known for bargains, and another user (Belvoir) pointed out that Aldi is great for low prices – and cited caviar face cream – normally costing over £100, being available in Aldi for only £6.99.

Towns and their collective offer of shops are there for everyone – and one man’s tat is another man’s treasure. Retailers compete by offering a bundle of products, prices and service that appeal to particular customer segments. There is a lot of talk about customer loyalty in retailing – but loyalty can mean being loyal to brands (and shopping at different outlets), being loyal to outlets (and buying own brands) or being loyal to the idea of saving money (and buying bargains wherever they appear).

When discounters like Aldi entered the UK market they were just expected to appeal to people who had less money to spend, but 20% of Aldi’s customers are AB or middle class. And this figure is rising. Liking a bargain – or not feeling you are being ripped off – is not just the prerogative of poorer shoppers.

The last few years have been characterised by low consumer confidence. People obviously feel they should tighten their belts when there is talk of unemployment, or bad times ahead – but do you really have to do without Serrano ham when it is 1/10th of the price you are used to paying for it? Aldi and other discounters allow consumers to have their cake (or even posh gateaux) and eat it, literally.

Many of the posts on the Poynton Forum are not just about Aldi. They are more general comments about parking and also the impact the opening of another supermarket will have on local shops.

At the Institute of Place Management at Manchester Metropolitan University we have just completed a nationwide project, funded by the Economic and Social Research Council, that investigated all the factors that influenced high street performance (High Street UK2020), in particular footfall – or how many people shop in an area. The convenience of a centre was the 5th most important factor out of the 201 that we found. In other words how convenient is a centre to reach and get around once you are there is a very important predictor of its performance.

The Aldi development is not as convenient and well connected to the rest of Poynton as some of the other supermarkets (Waitrose, Asda and Coop). The Aldi is over the 500m distance of the typical linked trip. That’s when you go to a centre for one purpose, like a top-up shop (milk, toilet paper etc) and then also visit other stores or services, like stopping for a coffee, popping to the bank or doing other shopping like buying cakes at the bakery or picking up a birthday card.

So Aldi is unlikely to strengthen the collective offer of the village. Putting it simply, people driving to Aldi and parking are unlikely to shop in rest of Poynton. In fact, the walk from Aldi to Waitrose, the strongest anchor at the end of Park Lane, is well over half a mile.

Of course when Aldi and Lidl entered the UK, market analysts thought that there would be no cross-shopping between the discounters and high end stores like Waitrose. But that’s not the case. Consumers are far more willing to buy from a variety of stores. Some of that is due to the amount of in-town competition and provision. After the government of the day cracked down on the development of out of town shopping – The Big 4 grocery stores moved into town and edge of town centres because it was the only space they were allowed to expand into.

All of a sudden customers had a realistic choice to driving to an out of town location and doing a weekly shop. And that’s often been good news for the smaller traditional stores that tend to be located on high streets like Poynton. Supermarkets bring footfall.

As a village Poynton is very fortunate – as according to Which they have both of the UK’s best supermarkets, Aldi and Waitrose. Whether you think Aldi is good news or bad news is a matter of personal opinion and, of course, where you shop is up to you. As an academic who has been studying town centre change for nearly 20 years I am pleased to see there is such a strong local grocery retail offer in Poynton. Which is accessible to both car drivers and pedestrians.

If you want to hear the full BBC Radio Manchester story click here.

If you want to see how the Daily Mail covered the story click here.

Morrison’s launches online grocery service

On Friday I did an interview with BBC 5 live about Morrisons’ decision to start offering an online grocery service in January 2014. Whilst I don’t normally talk about retail in my blog I think this does have some ramifications for the high street.

You can listen to it here

Morrisons is very late with this offer. Waitrose for example has been offering home delivery of its groceries since 2002.

The grocery retail sector in the UK is worth £163 billion. Even though only 5.5% of grocery retail sales are online as one of the Big 4 retailers, Morrisons may have been losing up to £1 billion a year in sales by not offering an online service to its customers.

This was especially apparent over Christmas when they lost out to other retailers that offer customers on-line ordering flexibility and the convenience of home delivery.

But let’s not confuse sales with profitability. It is estimated that it costs £15 to service the average online shopping basket. When you think that customers actually only pay around about £5 for the service then you can see that online delivery eats into retailers’ profitability.

But Morrisons’ market share is falling and basically, they need to restore confidence in their offer to their shareholders and investors.

Their choice of entry into the online grocery market with logistics partner Ocado is expensive but allows Morrisons to compete in their peer group, in other words by offering nationwide coverage by January next year.

If you order your food online from Morrisons, it will be delivered by Ocado, albeit in a Morrisons branded van. Basically Ocado are offering Morrisons the same service they have provided Waitrose for over 10 years. And Waitrose are not very happy about the Morrison deal.

So, is it worth Ocado upsetting such a long-term and important partner like Waitrose?

Well, Waitrose’s market share is growing but at 5% it’s less than half of Morrison’s.

Also Waitrose positions itself as a more upmarket retailer so it’s always going to have a smaller market share than a ‘big middle’ retailer like Morrisons.

Ocado’s business model relies on a percentage of sales income from its retail partners so potentially it can make a lot more money with Morrisons.

Also, Waitrose has been investing in its own delivery service, initially in London, when its exclusive arrangement with Ocado ended within the M25 area.

Waitrose sees itself as an omni-channel retailer in which case it is going to want to control all aspects of its channels to market, to ensure a standard level of customer service and control all ‘touch points’ with its brand.

Whilst it is still tied to Ocado to deliver its groceries outside of the M25 area until 2017, Waitrose has been pushing its click and collect service which means customers can order online and collect from 152 stores and also some John Lewis outlets. Sales through click and collect nearly doubled last year. This service is expected to be rolled out to all John Lewis stores and Waitrose convenience stores this year.

So what does this mean for the high street? Well as the last big grocery retailer enters the online delivery market I think we will start to see some impact on prices.

Serving the customer from a traditional store is cheaper at the moment. Customers make their own way to the store, they pick their own items, they pack them and deliver them back home themselves. The customer bares all the labour and transport costs.

High street stores may offer cheaper prices to consumers, thereby differentiating themselves by channel rather than brand. The discount retailers like Aldi and Lidl are certainly doing very well and many trade from in town or edge of town locations.

It seems only fair to reward customers with cheaper prices if they are prepared to offer their own home delivery service.