Almost all major supermarkets have introduced delivery and click-and-collect services in order to satisfy perceived customer purchasing preferences.
However, the ‘Big Four’ UK supermarkets (Tesco, Asda, Morrisons and Sainsbury’s) have all steadily ceded ground to budget rivals Lidl and Aldi, which have both almost doubled their market share since 2014.
Neither Lidl nor Aldi offer these supposedly vital services. Therefore, this blog will explore the additional factors that might be contributing to their growing profitability.
The logic of delivery and click-and-collect in relation to supermarket customer purchasing preferences
The Big Four supermarkets introduced delivery and click-and-collect services in an attempt to stay relevant in the age of eCommerce.
Logic dictated that – while administering home delivery services is costly – it would enable them to align their offering with that of Amazon and other fast-growing online retailers.
In terms of click-and-collect, the supposed benefits were a little more nuanced. Customers would have the convenience of ordering products online, but then come into a store to collect their order.
This reduces the administrative burden of each order compared to home delivery. It also presents an opportunity for further in-store purchases and helps brick-and-mortar stores remain relevant.
So invested were the Big Four that many formed partnerships to expand their click-and-collect offering in a bid to cultivate an additional revenue stream. For instance, Amazon customers can collect their orders from their local Morrisons store.
Initial signs were largely positive. In 2014, Tesco reported £127m profits derived from its home delivery service alone. While like-for-like in-store sales fell 2.3%, home delivery sales increased 10%. This service accounted for 8% of all food sales over the festive period.
Lidl and Aldi have increased market share without offering delivery or click-and-collect services
Despite these positive indicators, Lidl and Aldi have continued to take market share from the Big Four.
Some of this might be due to the costs of establishing and administering these services offsetting gains from sales. Widespread uptake also now means the market is just as congested as it is for brick-and-mortar stores, making these services merely another cost of staying competitive.
- Cost: Prices at all supermarkets have risen due to the falling value of the pound. This makes cost-savings more of a priority for consumers, drawing them towards discount retailers and reducing the likelihood that customers will be willing to pay more for delivery or click-and-collect.
- Stores: The medium-sized store appears just as profitable (if not more so) than the megastore/convenience store combination deployed by the Big Four in inner-city areas. Lidl is clearly targeting this market, with plans to open five new stores across London.
- Marketing: Lidl and Aldi appear to have invested some of their profits in improved marketing. A focus on British produce is now evident, helping to dispel one negative stereotype. Aldi’s Christmas advert also struck a chord with consumers, proving the most popular of the 2017 festive season.
Periscope® provides the data processing and visualisation capacity you need to derive concrete insights such as these into supermarket customer purchasing preferences. Find out more about your target market and optimise your retail services to enhance overall profitability.
Gain the strategic insights you need to optimise your retail services and portfolio of properties with Periscope®.