Last week it was confirmed that J Sainsbury PLC’s takeover agreement with Home Retail Group PLC had been approved by the UK Financial Conduct Authority.
Is this a case of two businesses facing market share erosion from major competitors (principally Aldi, Lidl, Amazon respectively) combining forces to stem the tide? Or are there other factors at play? What can the retail sector at large learn from the steps being taken by these giants to evolve?
The term ‘grocer’ is fast becoming irrelevant in reference to the major supermarkets. The incremental increase in sales of non-food goods across the sector – and the online sale thereof – are trends with which Sainsbury’s has arguably struggled to keep pace.
Let’s take their TU brand as an example. Originally a clothing-only label, it was then diversified to include homewares and other non-food ranges. Latterly this was reversed, with TU being refocused as a clothing-only line again, driven by celebrity endorsements (Gok Wan) and marketing that drew more cues from the world of fashion than grocery, or indeed multi-category retail. In 2015, TU’s online store was launched – the last of the original ‘big 4’ to make it’s clothing available online.
The huge range of non-grocery products offered by Argos – and consequent buying power across a vast array of categories – will instantly enable Sainsbury’s to broaden its offering. They will quickly leap ahead of the immediate competition in terms of range, and therefore, convenience, whilst meeting the established expectation of younger (and future) shoppers to be able to buy everything in one place.
From a bricks and mortar perspective, this will mean huge opportunities to make their vast physical retail footprint – increasingly an expensive luxury – work much harder. By placing Argos Click & Collect locations inside increasingly unpopular large out of-town uber-stores, the business can both put excess space to more efficient use, and drive footfall by significantly broadening consumers’ ‘reasons to visit’.
From an online perspective, Argos’s delivery infrastructure will enable significant improvements to Sainsbury’s’ service offering. Though the plan will be to close some of the 750 Argos stores, those that remain open represent an opportunity to leverage Argos’ pioneering ‘stores as catalogued warehouses’ model to meet the distribution demands – and delivery expectations – of customers now used to the Amazon way of life. Faster delivery + better product availability + choice of returns channels = happier customers. Will we see a genuine competitor to Amazon’s ‘Prime Now’ same day grocery delivery service?
And while we’re talking digital – perhaps Argos’ well documented adventures and experiments with in-store technology might mean that finally the convenience retail environment is updated to reflect the needs and behaviours of its customers – with Sainsbury’s leading the way.
Another driver could be the ongoing race to meet the ‘death of the middle’ head on. With Lidl & Aldi (at one end of the value spectrum), and Waitrose (at the other) all performing well, the ‘big 4’ have been left somewhere in the middle to fight it out. Of those, Sainsbury’s is the only one still showing growth but with Morrisons’ tie up with Amazon putting 4% on share value, it seems now is the time to take bold, positive action in steering this UK institution to a firmer footing. Also YouGov’s Profiles tool shows that Argos customers are most likely to shop at Tesco – could this be the biggest attempt yet at stealing Tesco’s market share? And how will Tesco fight back? The Tesco Direct ‘standard’ delivery offering of 2-5 days is likely to come under consumer scrutiny with much quicker delivery from competitors shifting perceptions of ‘acceptable’.
This move seems to answer the growing number of threats coming from all angles in a rapidly evolving convenience retail market. Of course, it comes at a huge financial cost to Sainsbury’s. Only time will tell if is a stretch too far, or a perfectly timed commercial rejuvenation that sees Sainsbury’s take on all comers and win. With the outcome on consumer confidence following the Brexit vote still not clear, the timing seems risky. However, given that most of the changes above will take as long as Article 50 to activate, it’s too early to tell. One thing is for certain though – the takeover agreement will have put the whole sector on high alert for both defensive and offensive opportunities to diminish the threats that this new convenience superpower could pose.
Orange or not, the future looks bright for consumers as competition for their attention, approval and hard earned cash continues to be driven, in part, by time-poverty’s inevitable bi-product – the need for convenience.