While the economy is showing positive signs of recovery, there is still a long way to go. Inflation remains at a worrying level, and this in turn is having a negative effect on consumers – especially those still struggling with pay freezes or very low real-wage rises.
In fact, chief executive of Morrisons, Dalton Philips, has claimed that a third of the chain’s customers are only “one pay cheque away” from potential financial disaster. This, he says, is causing a long-term shift in consumer behaviour.
Mr Philips explains; “For all the green shoots out there, consumers are still under pressure.
“It’s a paradigm shift in how consumers feel and how they will continue to manage their pounds – half of our customers are physically checking the prices of items in their baskets.”
The UK’s top supermarkets have responded to this pattern in consumer behaviour by altering their estate strategies; rather than investing in the expansion of their larger supermarket or hypermarket portfolio, the race is now on to acquire smaller spaces on the high street to strengthen convenience store networks. As consumers now rely so heavily on online shopping for the “big shop” every week, there is a greater profit margin for supermarket chains in opening smaller stores with lower running costs for daily essentials.
However, Morrisons has fallen behind in this latest space race, which Mr Philips addressed in his two year strategy report. He plans to put Morrisons on a “level playing field” with rival brands through aggressive expansion of its convenience store network and modernising in-store payment systems.
In fact, his aim is to open 300 convenience stores over the next 3 years, and has already pledged to invest £300 million in updating systems and technology within the store network.
Should Morrisons wish to catch up with its rivals, especially market leader Tesco, a lot of time and investment will have to go into the expansion plan. With click and collect playing a huge role in Tesco’s ongoing success, Morrisons will have to come up with a rival system which is just as popular with consumers – although a £200 million tie-in with online brand Ocado is in the pipeline, this will not come into effect until 2014.
At present, with many consumers still struggling to make ends meet, supermarkets are relying on a combination of the sunshine, a string of promotions and continuing good news from the economy to post more positive results than have been seen in the UK for some time.
However, should the situation change and consumers become better placed to spend more freely, any chain which is not ready to cater to the current market trend for convenience may find itself all but obsolete in one of the most competitive areas of the retail industry.
Do you think the current preference for convenience stores will change as consumers acquire more disposable income, or is the trend resulting from the boom in online shopping as opposed to the economic conditions?