The increasing importance of simplicity, consistency and transparency…
We are taking a short break from our series of blogs on Category Development to share our latest view on what is happening in the UK grocery market. The last couple of weeks have been full of announcements on value. Rather than try to unpick all of these, we wanted to talk about a central theme that we think is emerging – Trust.
Underlying this is the general decline in Trust in authority over the last few years. This has worked its way from Bankers to Government and more recently, we believe, the big UK grocers. And as trust in the big grocers has been decreasing, trust in the Discounters has been increasing.
We think this is partly to do with what (i.e. low prices) the Discounters are doing and partly to do with how they are doing it. And we think the how is crucial to building trust.
There are 3 things that contribute to Trust – simplicity, consistency and transparency. Aldi and Lidl are delivering on all three, hence their strong sales and share growth.
So, what do we specifically mean?
Simplicity. In Aldi and Lidl the shelf edge price is as cheap as you will find the product anywhere. In contrast, the big grocers are using a mixture of promotions, loyalty points and price to compete. Sainsbury’s medium low strategy, which we think is wise, is a step in the right direction. However, they quickly followed that announcement with another one saying they are reducing the value of Nectar points. We wouldn’t be surprised if shoppers felt they were giving with one hand and taking away with the other.
Morrison’s recently announced they are matching Aldi and Lidl prices. This sounds straightforward, until you see the price matching scheme, which is based on collecting points over time and eventually redeeming them when you have built enough up. Something that should be simple is actually pretty complex, as Lidl’s brilliant advertising response the day after the Morrison’s announcement demonstrated.
Consistency. In Aldi and Lidl the prices rarely change. For a shopper on a budget, this is great. You know that your basket will cost the same next week and the week after that. This means you can opt out of the promotional game. No need to worry about whether you are getting a bargain one week or ripped off the next week. Consistency from a store encourages consistency from the shopper. And consistency breeds loyalty.
We see an irony at play here. The more that the big retailers announce new initiatives on value, the more they reinforce the point of differentiation – pricing simplicity and consistency – that the Discounters have. By the way, we think it is no coincidence that the only one of the Big 4 who are growing are Asda, who probably follow the simplicity and consistency principle better than most.
Finally, Transparency. The Discounters have been explaining how they achieve what they achieve on price (for an example see Lidl’s latest in store leaflet text at http://www.lidl.co.uk/en/602.htm ). They are effectively saying to shoppers ‘if you want smarter stores, more range, a better checkout experience, it will cost us more to deliver it, which means it will cost you more to shop here. Which would you prefer?’ It is a simple contract that they have entered into with shoppers, which is working well for both parties.
We think that the Big 4 retailers need a similar ‘contract’ with shoppers to rebuild trust in their own proposition. However, this contract would have different terms. It would be true to their own area of excellence, allowing them to be simple, consistent and transparent on their strengths. If you can’t be the most trusted on price, be the most trusted on overall value – quality, ideas, service, in store experience.
Don’t copy what the Discounters do, but learn from how they do it. More on this next week…
Have a great weekend and speak to you next week.