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Supermarkets -  UK - November 2016

OVERVIEW
What you need to know
Products covered in this Report
EXECUTIVE SUMMARY
The market
Confidence: bouncing back following Brexit
Record deflation in the food categories but price rises imminent
Figure 1: Food and drink inflation, 2011-16
Consumer spending on food takes a dive
Figure 2: Annual % change in the value, volume and prices in the food category, 2011-15
Supermarkets’ sales falling but positive growth on the horizon
Figure 3: Supermarkets market size (inc. VAT), 2011-21
Increased choice has chipped away at sector share
Figure 4: Estimated breakdown of sector sales, by channel, 2011-16
Leading players
The big four continue to lose market share
Figure 5: Leading grocery retailers: Share of sector sales, 2015
Continued growth in online could hurt supermarkets
Figure 6: Leading online grocery retailers’ estimated market shares (excluding VAT), 2015
Morrisons and Waitrose lead on fresh food allocation
Figure 7: UK leading food retailers: food and drink categories as a percentage of total space allocated to food and drink, October 2016
Improved levels of trust at Tesco, Sainsbury’s and Morrisons
Figure 8: Attitudes towards and usage of selected brands, October and January 2016
The consumer
Most shop multiple times per week
Figure 9: Frequency of grocery shopping, September 2016
Most still spend the most in supermarkets
Figure 7: Formats where the most money is spent in a typical month, September 2016
Tesco the dominant player
Figure 8: Primary and secondary usage by grocery, retailer used, September 2016
Why they shop in supermarkets…
Figure 9: Why they spend the most in supermarkets, September 2016
…and why they don’t
Figure 10: Why they do not spend the most in supermarkets, September 2016
Availability a core concern for supermarket shoppers
Figure 11: Areas that supermarkets shoppers would like to see improved, any rank, September 2016
Shoppers in favour of the move to EDLP
Figure 12: Attitudes towards pricing and promotions, September 2016
Own-brand the differentiator
Figure 13: Attitudes towards range reduction and own-brand, September 2016
Brexit is likely to place greater scrutiny on sourcing
Figure 14: Attitudes towards sourcing and the effect of Brexit, September 2016
What we think
ISSUES AND INSIGHTS
Will Brexit cause a greater focus on sourcing?
The facts
The implications
Own-brand: more important than ever?
The facts
The implications
Non-foods: an increasingly competitive battleground
The facts
The implications
THE MARKET – WHAT YOU NEED TO KNOW
Confidence rising steadily
Deflation persists but price rises on the horizon
Consumer spending on food and drink falls in 2015
Supermarkets sector continues to see sales decline
Supermarkets have lost sector share consistently since 2011
MARKET DRIVERS 
Consumer confidence rises steadily
Figure 15: Consumer confidence: Current financial situation vs sentiment for the coming year, January 2014-September 2016
Inflation remains low
Figure 16: Food and drink inflation, 2011-16
Growth in the number of convenience stores
Figure 17: Store numbers of the leading convenience operators, by operation, 2011-15
Growth in other channels
Figure 18: Market size for online grocery retailing and discounter grocers, 2011-16
Consumers prepared for increasing cost of living
Figure 19: Consumer views on the impact of Brexit, July 2016
Private renting increases
Figure 20: UK household tenure status, 2011-15
CONSUMER SPENDING ON FOOD AND DRINK 
Figure 21: Consumer spending on core food and drink categories, 2011-16
Spending on food
Figure 22: Annual % change in the value, volume and prices in the food category, 2011-15
How food spending breaks down
Figure 23: Composition of consumer spending on food, categories as a % of total spending, 2012-15
Spending on non-alcoholic drinks
Figure 24: Annual % change in the value, volume and prices in the non-alcoholic beverages category, 2011-15
Spending on alcoholic drinks
Figure 25: Annual % change in the value, volume and prices in the alcoholic beverages category, 2011-15
Figure 26: Composition of consumer spending on alcoholic drinks, categories as a % of total spending, 2012-15
SECTOR SIZE AND FORECAST
Sector sales slowed by deflation
Figure 27: All food retail sales (inc. VAT), 2011-21
Figure 28: All food retail sales, 2011-21
Supermarkets’ sales fall once more in 2015
Figure 29: Supermarkets’ market size and forecast (inc. VAT), 2011-21
Figure 30: Supermarkets: market size and forecast (inc. VAT), 2011-21
Supermarket share predicted to continue to fall
Figure 31: Percentage of grocer sector sales accounted for by supermarkets, 2011-21
The impact of the EU referendum vote on the grocery sector
The grocery sector has been resilient in previous slowdowns
Figure 32: Alternative market scenarios for the post-Brexit grocery sector, at current prices, 2016-21
Figure 33: Detailed post-Brexit scenarios for the grocery sector, at current prices, 2016-21
The grocery sector is more insulated from economic slowdown than other sectors
The effect on supermarkets
Same again?
Forecast methodology
Changes in methodology
CHANNELS OF DISTRIBUTION 
Despite falling share, supermarkets remain the dominant force
Figure 34: Estimated channels of distribution for grocery retail sales, 2015
Figure 35: Estimated breakdown of sector sales, by channel, 2011-16
THE CONSUMER – WHAT YOU NEED TO KNOW
The majority shop multiple times per week
Many still spend the most in supermarkets
Tesco is the dominant player
Historical strengths remain but increased choice is hurting supermarkets
Availability a core concern for supermarket shoppers
Shoppers in favour of the move to EDLP
Brexit is likely to place greater scrutiny on sourcing
HOW THEY SHOP 
Who does the shopping
Figure 36: Who is responsible for grocery shopping, September 2016
Most combine a main shop with a top-up
Figure 37: Grocery shopping behaviours, September 2016
Older consumers more likely to shop purely on a top-up basis
Figure 38: Grocery shopping behaviours, by age, September 2016
Frequency of shop
Figure 39: Frequency of grocery shopping, September 2016
Changing definition of what constitutes a main shop
Figure 40: Frequency of shop, by shopping behaviour, September 2016
Age affects shopping frequency…
Figure 41: Frequency of shop, by age, September 2016
…as does the area lived in
Figure 42: Frequency of shop, by area lived in, September 2016
WHERE THEY SHOP 
Despite falling market share the majority spend the most in supermarkets
Figure 43: Formats where the most money is spent in a typical month, September 2016
Younger consumers more likely to look elsewhere
Figure 44: Formats where the most money is spent in a typical month, by age, September 2016
Discounters have made up the most ground in the North
Figure 45: Format where the most money is spent, by region, September 2016
Top-ups taking away market share
Figure 46: Formats where the most money is spent in a typical month, by frequency of shop, September 2016
WHICH RETAILERS DO THEY USE?
Tesco out in front
Figure 47: Total grocery retailer usage, September 2016
Tesco also grabs the most primary shops
Figure 48: Primary and secondary usage, by grocery retailer used, September 2016
Main shop trend: Asda losing shoppers fast
Figure 49: Retailer spent most money with, trend data, 2013-16
Secondary shop trend: small changes
Figure 50: Secondary usage, by grocery retailer used, 2015 and 2016
Discounters taking more secondary shops from Asda and Morrisons
Figure 51: Where leading players’ primary shoppers also shop, September 2016
Shopper profiles: primary shoppers
Figure 52: Retailers used for primary shops, by average age and socio-economic group, September 2016
Figure 53: Retailers’ primary shoppers, by region lived in, September 2016
Shopper profiles: secondary shoppers
Figure 54: Retailers used for secondary shops, by average age and socio-economic group, September 2016
Figure 55: Retailers used for secondary shops, by region lived in, September 2016
Figure 56: Retailers used for secondary shops, by region lived in, September 2016
Repertoire of secondary shops
Figure 57: Number of retailers used for secondary shops, September 2016
WHY THEY DO (AND DO NOT) SPEND THE MOST IN SUPERMARKETS
Historical strengths ring true for supermarkets
Figure 58: Why they spend the most in supermarkets, September 2016
Key reasons by age
Figure 59: Leading reasons why they spend the most in supermarkets, by age, September 2016
Reasons by retailer
Figure 60: Reasons for spending the most in a supermarket in a typical month, by retailer where the most is spent in a typical month, September 2016
Increased choices are driving some away
Figure 61: Why they do not spend the most in supermarkets, September 2016
Those living in urban areas more likely to have an alternative
Figure 62: Why they do not spend the most in supermarkets, by area lived in, September 2016
WHAT THEY WOULD CHANGE ABOUT WHERE THEY SHOP
Availability a concern
Figure 63: Areas that grocery shoppers would like to see improved, any rank, September 2016
Figure 64: Areas that grocery shoppers would like to see improved, by rank, September 2016
Retailer-specific concerns
Tesco: Quality concerns
Figure 65: Overall ranking of factors supermarket shoppers would like to see improved, by total and by Tesco shoppers, September 2016
Figure 66: What Tesco shoppers would improve, any rank, September 2016
Sainsbury’s: Range a positive, but more information is needed
Figure 67: Overall ranking of factors supermarket shoppers would like to see improved, by total and by Sainsbury’s shoppers, September 2016
Figure 68: What Sainsbury’s shoppers would improve, any rank, September 2016
Asda: A good deal of change needed
Figure 69: Overall ranking of factors supermarket shoppers would like to see improved, by total and by Asda shoppers, September 2016
Figure 70: What Asda shoppers would improve, any rank, September 2016
Morrisons: Range of non-foods singled out
Figure 71: Overall ranking of factors supermarket shoppers would like to see improved, by total and by Morrisons shoppers, September 2016
Figure 72: What Morrisons shoppers would improve, any rank, September 2016
Aldi: Quality of goods a real strength
Figure 73: Overall ranking of factors supermarket shoppers would like to see improved, by total and by Aldi shoppers, September 2016
Figure 74: What Aldi shoppers would improve, any rank, September 2016
ATTITUDES TOWARDS PRICING AND PROMOTIONS 
Consumers in favour of the move to EDLP
Figure 75: Attitudes towards pricing and promotions, September 2016
Sainsbury’s shoppers less convinced by EDLP
Figure 76: Agreement with statements around pricing and promotions, by retailer where the most money is spent, September 2016
Younger consumers far less price-aware
Figure 77: Agreement with the statement ‘I rarely pay attention to prices when in a grocery stores’, by gender and age, September 2016
In an EDLP world own-brand will be increasingly important
Figure 78: Attitudes towards range reduction and own-brand, September 2016
Tesco shoppers see own-brand as a bigger differentiator
Figure 79: Agreement with the statement ‘The main difference between supermarket retailers is their own-brands’, by retailer where the most money is spent, September 2016
ATTITUDES TOWARDS BREXIT, SOURCING AND ETHICAL PRODUCTS
Over a third expecting price rises post-Brexit
Figure 80: Attitudes towards the effect of Brexit on pricing, September 2016
Sourcing is likely to be thrown into the spotlight in a post-Brexit market
Figure 81: Attitudes towards sourcing and the effect of Brexit, September 2016
Aldi shoppers want more locally sourced products
Figure 82: Attitudes towards sourcing and the effect of Brexit, by retailer where the most is spent, September 2016
Younger consumers particularly aware of potential price rises
Figure 83: Agreement with the statement “Leaving the European Union will mean we pay more for groceries in the UK”, by age, September 2016
Ethical products perceived at coming at a (unfair) cost
Figure 84: Attitudes towards ethical products, September 2016
Younger consumers have concerns over the ethics of the discounters
Figure 85: Agreement with the statement “The discounters, Aldi and Lidl, are less ethical (eg free-range, fair trade etc) than other supermarkets”, by age, September 2016
LEADING RETAILERS – WHAT YOU NEED TO KNOW
The big four continue to lose market share, but losses are slowing
Online: increasingly a channel in its own right
Retail product mix: room to grow non-foods
Advertising spend falls in 2015
Improved levels of trust at Tesco, Sainsbury’s and Morrisons
INNOVATION AND LAUNCH ACTIVITY
Making supermarkets a destination again
Figure 86: Habitat shop-in-shop, Sainsbury’s Nine Elms, October 2016
Groceries delivered straight to the fridge
Pop-up wine bars
Cycle delivery
Figure 87: Sainsbury’s Chop Chop, October 2016
Inclusive shopping
Tackling food waste
Fresh as can be
Figure 88: INFARM high-tech kitchen garden in Metro store, Berlin, February 2016
Free fruit for kids
Driverless trolleys
LEADING GROCERY RETAILERS – KEY METRICS 
2015: Another challenging year
Figure 89: Leading grocery retailers: Net sales, 2011-15
Store numbers and sales per outlet
Figure 90: Leading grocery retailers: Store numbers, 2011-15
Figure 91: Leading grocery retailers: Annual sales per outlet, 2011-15
Sales area and densities
Figure 92: Leading grocery retailers: Total sales area, 2011-15
Figure 93: Leading grocery retailers: Annual sales per sq m, 2011-15
Operating profits and margins
Figure 94: Leading grocery retailers: Operating profits, 2011-15
Figure 95: Leading grocery retailers: Operating margins, 2011-15
MARKET SHARES
Figure 96: Leading grocery retailers: Share of sector sales, 2015
Figure 97: Leading grocery retailers: Share of sector sales, 2011-16
Figure 98: Market shares: the big four grocery multiples vs the discounters, 2011-16
A note on our market share
Space allocation and retail product mix
ONLINE 
Around half do some online grocery shopping…
Figure 99: Usage of online grocery shopping, December 2015
…but online only accounts for 5.3% of sector sales
Figure 100: Online grocery sales as a % of all grocery retailers’ sector sales, 2011-16
Delivery passes: a double-edged sword?
Figure 101: Ownership and interest in delivery passes, December 2015
Online market shares
Figure 102: Leading online grocery retailers’ estimated market shares (excluding VAT), 2015
What about Amazon?
Figure 103: Attitudes towards shopping online for groceries from Amazon, December 2015
SPACE ALLOCATION SUMMARY 
Summary data and classifications
Figure 104: Food, non-food standard classifications, 2016
Convenience comparison overview
Figure 105: UK leading food retailers’ hypermarket store format: Convenience comparison overview split, October 2016
Figure 106: UK leading food retailers’ superstore format: Convenience comparison overview split, October 2016
Figure 107: UK leading food retailers’ smaller supermarkets and discounters: Convenience comparison overview split, October 2016
Detailed convenience comparison split
Figure 108: UK leading food retailers’ hypermarket store format: Convenience comparison detailed split, October 2016
Figure 109: UK leading food retailers’ superstore format: Convenience comparison detailed split, October 2016
Figure 110: UK leading food retailers’ smaller supermarkets and discounters: Convenience comparison detailed split, October 2016
Food and drink split
Figure 111: UK leading food retailers: food and drink categories as a percentage of total space allocated to food and drink, October 2016
Detailed space allocation
RETAIL PRODUCT MIX 
Figure 112: Leading food retailers:  Estimated sales mix, 2015
Figure 113: Leading food retailers:  Category sales as % of total sales, 2015
Figure 114: Sales density, by broad category (ex VAT), 2015
Figure 115: Major food retailers:  Estimated market share of key categories, 2015
BRAND RESEARCH
What you need to know
Brand map
Figure 116: Attitudes towards and usage of selected brands, October and January 2016
Key brand metrics
Figure 117: Key metrics for selected brands, October and January 2016
Brand attitudes: Lidl and Aldi lead on value
Figure 118: Attitudes, by brand, October and January 2016
Brand personality: Co-op struggles, but shows signs of improvement
Figure 119: Brand personality – macro image, October and January 2016
Discounters are seen as basic, but trendsetting
Figure 120: Brand personality – micro image, October and January 2016
Brand analysis
A good year for Tesco
A Morrisons renaissance
Asda’s reputation for value continues to dissipate
Lidl and Aldi increasingly seen to offer more than just value
Exclusivity of Waitrose and M&S Food helps them stand out
Co-op behind but moving in the right direction
Iceland improves its image
Ocado, small but highly recommended
ADVERTISING AND MARKETING ACTIVITY
Total advertising spend falls in 2015
Figure 121: Recorded above-the-line, online display and direct mail total advertising expenditure by UK supermarket and online grocers, 2012-15
Asda and Lidl lead advertising spend
Changing advertising strategies
Co-op increases adspend to focus on convenience
Competition leads to disputes
Figure 122: Recorded above-the-line, online display and direct mail total advertising expenditure by leading UK grocery retailers, 2012-15
TV increases its dominance
Figure 123: Percentage media type split of recorded above-the-line, online display and direct mail total advertising expenditure by UK supermarkets and online grocers, 2012-15
Lidl and Iceland boost spending on TV advertising
Ocado prefers press advertising
Figure 124: Percentage of recorded above-the-line, online display and direct mail total advertising expenditure by the UK’s leading grocery retailers, by media type, 2015
Nielsen Ad Intel coverage
ALDI
What we think
Simpler is better
Figure 125: Aldi joint advertising campaign, 2016
Slowing growth in the UK
Entering the Italian market
Experimenting with online
Company background
Company performance
Figure 126: Aldi: Estimated group sales performance, 2011-15
Figure 127: Aldi: Number of outlets, 2011-15
Retail offering
ASDA GROUP 
What we think
Gross margins
Cost cutting
Falling market share
Where next?
Company background
Company performance
Figure 128: Asda Group Ltd: Group financial performance, 2011-15
Figure 129: Asda Group Ltd: Outlet data, 2011-15
Retail offering
THE CO-OPERATIVE FOOD 
What we think
New luxe brand to inspire and encourage customers to re-appraise The Co-op Food own-brand
Tailoring food ranges to local communities
Adapting its stores to make the top-up grocery shopping experience easier and quicker
Price cuts eating into profits
Award winning food-to-go product range
Tapping into health issues upper most in consumers' minds
Tackling food waste
Company background
Company performance
Figure 130: The Co-operative Food: Group financial performance, 2011/12-2015/16
Figure 131: The Co-operative Food: Outlet data, 2011/12-2015/16
Retail offering
ICELAND FOODS 
What we think
Three areas of future focus
New concept store provides pointers to future direction of Iceland brand
Power of Frozen campaign seeks to change perceptions
The Food Warehouse brand taps into retail park popularity
Online business shows potential
Background
Company performance
Figure 132: Iceland Foods Ltd: Group financial performance, 2011/12-2015/16
Figure 133: Iceland Foods Ltd: Outlet data, 2011/12-2015/16
Retail offering
MARKS & SPENCER (UK FOOD)
What we think
Convenience food for treats and special occasions
Finding the right balance with availability
Innovation key to keeping offer fresh
Refocusing on the UK
Background
Company performance
Figure 134: Marks & Spencer (UK food): Group financial performance, 2011/12-2015/16
Figure 135: Marks & Spencer (UK food): Food outlets, by format, 2011/12-2015/16
Figure 136: Marks & Spencer (UK food): Outlet data, 2011/12-2015/16
Retail offering
OCADO 
What we think
Scaling up
UK grocery home delivery competition intensifies
Still no news on international partner
Pressure builds for more distribution centres
Background
Company performance
Figure 137: Ocado group plc: Group financial performance, 2010/11-2014/15
Retail offering
J. SAINSBURY
What we think
Argos
Distraction
Modest optimism
Background
Company performance
Figure 138: Sainsbury’s:  Quarterly sales performance, Q1 2016-Q2 2017
Pharmacy
Figure 139: J. Sainsbury: Group financial performance, 2011/12-2015/16
Figure 140: J. Sainsbury: Outlet data, 2011/12-2015/16
Retail offering
SCHWARZ GROUP (LIDL)
What we think
Chasing Aldi in key markets
Changing strategy in France
Plans to break America
Tentative moves online
The Lidl shopper
Company background
Company performance
Figure 141: Schwarz Group: Group sales performance, 2011/12-2015/16
Figure 142: Schwarz Group: Outlet data, 2011/12-2015/16
Retail offering
SPAR INTERNATIONAL
What we think
Top-up grocery shopping opportunities
More reasons to visit Spar
Supporting consumers’ healthy food and lifestyle choices
New grocery delivery services
Own-brand drive
Digital Leadership Store
Company background
Company performance
Figure 143: Spar International: Retail sales, by country, 2011-15
Figure 144: Spar International: Outlets, 2011-15
Figure 145: Spar International: Retail sales area, 2011-15
Figure 146: Spar International: Sales per sq m, by country, 2011-15
Retail offering
TESCO
What we think
Success
Credit where it is due
Making the most of its assets
Retailing against the hard discounters
The problems of maturity
Outside the UK
Background
Company performance
Figure 147: Tesco:  Like-for-like sales performance (excluding fuel), H1 2015/16-H1 2016/17
Figure 148: Tesco, sales and share of food retailers sales, by country, 2014/15 and 2015/16
UK
RoI
Central Europe
Figure 149: Tesco:  European businesses, 2016
Figure 150: Central Europe:  store portfolios, October 2016
Online
Fuel
Tesco Bank
Tesco Mobile
Figure 151: Tesco Plc: Group financial performance, 2011/12-2015/16
Figure 152: Tesco Plc: Outlet data, 2011/12-2015/16
Retail offering
WAITROSE 
What we think
Store investment focus shifts
Re-affirming its core values
Waitrose 1 helps consolidates premium ranges
Experiential shopping
Online
Background
Company performance
Figure 153: Waitrose: Group financial performance, 2011/12-2015/16
Figure 154: Waitrose: Outlet data, 2011/12-2015/16
Retail offering
WM MORRISON GROUP
What we think
Cutting prices…
…to better compete with discounters…
…and address shoppers’ pricing concerns post-Brexit
More reasons to visit Morrisons stores
Tailoring product offering to suit local tastes
A more rewarding loyalty card scheme
Flagging up the in-store skills of its trained butchers, bakers and fishmongers
Morrisons.com expanding home delivery coverage
Company background
Company performance
Figure 155: Wm Morrison Group: Group financial performance, 2011/12-2015/16
Figure 156: Wm Morrison Group: Outlet data, 2011/12-2015/16
Retail offering
APPENDIX – DATA SOURCES, ABBREVIATIONS AND SUPPORTING INFORMATION
Data sources
Financial definitions
VAT
Abbreviations
Consumer research methodology
Detailed space allocation
Figure 157: UK leading food retailers hypermarket store format: detailed space allocation, October 2016
Figure 158: UK leading food retailers superstore format: detailed space allocation, October 2016
Figure 159: UK leading food retailers smaller supermarkets and discounters: detailed space allocation, October 2016
APPENDIX – SECTOR SIZE AND FORECAST
Forecast Methodology

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