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End of the supermarket?

25/01/2016

Online retail giant Amazon is preparing to expand the UK arm of its fledgling grocery business, Amazon Pantry, in a move that will do little to alleviate supermarkets’ woes. The financial performance of major supermarkets has been under considerable pressure in recent years, with Tesco recently reporting that profits have fallen by an enormous 55% in a year. 

One of the principle reasons for the supermarket super-troubles has been continued change in customer journeys. Less than half of Britons now make pilgrimages to large supermarkets for a weekly shop, with many preferring to use smaller high-street supermarkets when they need to. This is bad news for the big players, who are reliant on out-of-town hypermarkets for much of their business.

The increased digitisation of the customer journey has also had a significant impact on the grocery business. Britons spend more online than their cousins in Europe, and the rate of online spending is increasing rapidly. With the average consumer getting more and more comfortable buying everyday items online, it is no surprise that online specialists like Amazon are confident that they can turn the grocery business on its head. At the same time, the supermarkets are also coming under pressure from discount rivals such as Aldi and Lidl, who grew their customer base by over a million in 2015 alone.

Although times are tough for the big supermarkets, it would be foolish to write them off completely. One advantage they do possess is sound operational experience in the grocery sector, and a good understanding of UK customers. Their success will depend on their ability to leverage this expertise in a rapidly changing marketplace, and ensure their business model suits today’s consumer.

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