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The unchangeable truth for food retailers

Introduction

Retail and its targets

Retailing is a huge industry that has constantly changes the way we live. In the 80's and early 90's Wal-Mart pioneered new approaches to supply chain management and is nowadays the biggest company worldwide. H&M and Zara represent the apparel retailing of fast fashion concepts. And the hard-discount model from companies such as Aldi and Lidl dominates many European grocery markets and threaten current competitors (Corsten D 2008).

To manufacturing marketers, retailers are regarded as being at the end of the supply chain. On the other hand, it seems to the customers that retailers are at the very beginning of their shopping or purchasing work. They are expecting to get good or even excellent quality with as low price they would ultimately pay as possible. Therefore, for the retailers, there are some subordinated services, major services or targets that should be included in retailing process, such as customer service, products quality, price control and delivery, which are definitely customers' deep concern.

Based on the mentioned situation today in retail market, this paper would like to focus on food retailers, taking Sainsbury's and Lidl for examples, and illustrate the operations strategies in the likes of food retailers, and their competitive performance objectives as well, aiming to give some suggestions for food retailers in this particular period of economic downturn. Via the table of comparison, the paper will draw a conclusion on what is the best way for the market and the core of retail market - customers.

Food retailers - Sainsbury's

Sainsbury's Supermarkets is the UK's longest standing major food retailing chain, which was founded in 1869 by John James and Mary Ann Sainsbury and have opened its first shop in Drury Lane. Since 1869 they have grown from one shop to more than 800 today (Sainsbury's1 2010 [online]). They now serve over 18.5 million customers a week with great product at fair prices, and have a total market share of around 16 percent throughout the UK. An internet-based home delivery shopping service is also available to nearly 90 per cent of UK households (Sainsbury's2 2010 [online]).

Operations strategies of Sainsbury's

To help the UK's third largest supermarket chain return to its former glory, a revival strategy for the company within a few key areas such like products, stores and management, was carried out by the company.

Sainsbury's plans to add another 400 million pounds sterling as investment for pursuing good quality and better value for money in order to remain unbeaten in the battle with other retailers such like Tesco and Asda. More concentration will be placed on fresh food and own label products, especially in its Taste the Difference and Be Good to Yourself ranges (Press Association 2004). Online sales are a great opportunity as well, since online margins are higher and investments are not huge.

To do well in a sustainable business, Sainsbury's seems to be very well placed on green and environmental issues due to its various recent initiatives, like buying fair-trade bananas (economist.com 2008 [online]). It has a positive consumer brand and it's liked by both green activists and consumers.

The Company's 'Recovery to Growth' plan spans from March 2007 to March 2010 and has five areas of focus (Annual report of Sainsbury's 2009, p.7):

  • Great food at fair prices,
  • Accelerating the growth of complementary non-food ranges and services,
  • Reaching more customers through additional channels,
  • Growing supermarket space,
  • Active property management.

Operations priorities

Sainsbury's identified several areas as their priorities in March 2007 for their retailing business and helping taking them from recovery to growth (Sainsbury's3 2010 [online]). First of all, Sainsbury's pay much attention to their prices, claiming that they would continue to innovate and improve their performance in the business, taking the leading role in delivering quality goods with fair prices, in order to build on and stretch the lead in food. Secondly, by developing the online home delivery operation mode, opening new convenience stores and some other additional channels, Sainsbury's wants to extend the reach of the Sainsbury's brand, to satisfy its original customers and attract more potential customers. Meanwhile, Sainsbury's is working to accelerate the growth of non-food retail ranges and enlarging their supermarket space to provide better food offer while growing space for non-food ranges as well.

Product ranges

Sainsbury's offers around 30,000 products in their stores in seven different sub-brands, which is basics, British Food, SO Organics, Be Good to Yourself, Kids, Freefrom and Taste the difference (Sainsbury's4 2010 [online]).

Quality

Within our own-brand product ranges three tiers defined as 'good, better, best' are offered via the 'basics', standard Sainsbury's and 'Taste the difference' sub-brands. All tiers must adhere to Sainsbury's stringent policies concerning ingredients and sourcing so customers can be confident of the Company's attention to quality while ensuring products are tasty and as healthy as they can be.

Order winners

To show their respect for our environment, over 200 stores have achieved savings of over 53,000 tonnes of CO2 in 2008. And in last year 2009 Sainsbury's have now donated over ?70 million worth of sports equipment and experiences to schools, nurseries, Scouts and Girl guiding UK groups through our Active Kids scheme which was launched in 2005 (Annual report of Sainsbury's 2009. pp.7).

Sainsbury's delivery

When looking through the delivery process in Sainsbury's, their grocery service now covers 88% of the UK mainland and they also offer services from selected stores in Northern Ireland. Sainsbury's deliver the stuffs that customers ordered from a store local to them based on postcode. For most people's concern, the prices for delivery vary depending on the order they make. There are several levels of delivery charges, from a standard £6 delivery charge to a typically free delivery when more than £100 and in Tuesdays to Thursdays (Sainsbury's5 2010 [online]).

Sales volume

With economic conditions decline and competition intensifying, especially on price, this situation is likely to continue in 2009. However, in its interim results for the 13 weeks to January 3, 2009, Sainsbury announced that, excluding fuel, total sales increased by 5.3%, with like-for-like growth of 4.5%. Indeed, the grocer achieved 22.6 million transactions in the seven days before Christmas Day (Datamonitor 2009), as it attracted customers through aggressive promotional and price-led activity.

Discount retailer - Lidl

Food retailer - Lidl

Today, Lidl is one of the largest retailers in Europe dealing with food and households. Lidl's history goes back to the 1930s, when the company was founded in Germany as a grocery wholesaler. The first Lidl food store was opened in Germany in 1973 and by the 1980s Lidl was a household name throughout Germany (Lidl1 2010 [online]). As a result of the rapid development of their store network and business model throughout Europe in 1990's, they now have over 9000 stores in 25 European countries (IGD Retail Analysis 2009 [online]). Since 1994 when it entered the UK market, Lidl has successfully opened over 530 stores throughout the UK (Lidl2 2010 [online]).

Operations strategy of Lidl food retail

As far as Lidl is concerned, it has been a real beneficiary from the recession in the last year. As they say themselves in an interview done by International Supermarket News (2009), customers wanting to save money have flocked to the chain for not only their cheaper offer but, its premium quality. In fact, to survive in the economic recession that they are going through, Lidl choose a cost effective strategy to come over this hard time, synchronously developing its corporate strength in this specific strategy to cope with the market fluctuations and dynamics of customer demand.

Lidl's three-point plan for growth:

  • Extending the number of stores
  • Improving range of merchandise
  • Increasing brand awareness

It is said by Martin Bailie, Lidl's spokesman and regional director for the Midlands, that they have done a lot of work on the brand image and product management and on advertising, accompanied by the economic climate (Times online 2008 [online]), in which it is to reduce their scope of business operations. But for Lidl Company, as their long-term strategy, they aim to put their brand in front of a wider scope of audience.

Operations priorities

For Lidl, the famous discount food retailer, the customer satisfaction is their goal in all they do. The customers are the most important people in their business and their wishes are paramount and drive the way Lidl Company operates. As stated in Lidl's company statement, the first rule and also the most important element in the company is their customer philosophy (Lidl3 2010 [online]). All in five principles of Lidl's customer philosophy, their aim is to serve the customers, fulfil customer needs at all times, provide the customers with products in strictly assured quality at the best prices, and a tidy environment and a pleasant and enjoyable shopping experience as well.

Product range

Part of the key to discount chains' low prices is their much smaller range, which allows them to source goods cheaply and efficiently. Lidl sell only 1,600 product lines, compared with 20,000 in the likes of Tesco, Asda or Sainsbury's (Times online 2008 [online]). However, the discounter is open to adding more lines. In the past three years, the retailer has increased its product range from 900 to 1,600, which is a significant growth more than 60 percent. Meanwhile, UK director Martin Bailie said in an interview exclusively to Retail Week, though they could not achieve such a big growth in the following three years, they would not see the 1,600 products as a point at which they have peaked (Retail Week 2008).

Quality

Before the process of manufacture, materials, design and quality are all scrutinised well. And everything must meet the high requirements of Lidl's quality control team and production only begins once these standards have been met. However, not only had the production process been tested carefully, but also would the finished products be taken apart and subjected to every possible test to ensure they are of highest standard (Lidl4 2010 [online]). Lidl carry out quality control tests in its own comprehensive quality control procedure with experts from reputable laboratories independently, resulting in a wide range of quality stamps for our products.

Order winners

The issue retailers face in achieving low prices while maintaining margins is particularly pertinent for the discount operator, as Lidl operates in a low-margin environment (Euromonitor International 2007). Being regarded as a big discounter, Simplicity is the cornerstone of Lidl's success, and the benchmark for all their operations and work processes. They buy and sell with the aim of offering the customers everyday top quality products at the lowest possible price (Lidl5 2010 [online]).

It is the insistence on quality that ensures a healthy performance by the group, and a firm, quick and befitting response to global economic challenge. When the economic downturn is terrifying for most of the retailers, Lidl feels anything but frightened. As shoppers have begun to count their pennies and trade down, so the German store has cashed in, its lower prices, as much as 30 per cent lower than a regular supermarket, proving an irresistible lure (Times online 2008 [online]).

As reported in Travel Trade Gazette (2006), the budget supermarket chain Lidl has launched a scheme to sell low-cost airline flights at its checkouts. It is the first supermarket to trial the sale of air travel in the UK and Lidl was delighted to be expanding their existing range of weekly offers and extending it into a new sector, said Lidl director Tony Parker.

Delivery

It is a pity that here is no online shopping or home delivery service available from Lidl.

Analysis

Through the comparative analysis based on the items from the table above, it can be seen clearly that although there are some factors of the performance objectives in these two approaches are similar such like the awareness of quality and prices, the long term strategy are not exactly the same. For instance, Sainsbury's would like to invest more resources to build up their brand image, ensure the support and loyalty of original customers and extend the reach of the potential groups. On the contrary, Lidl is placing high priority on opening and modernising its infrastructure and seeking a wide range of products and services.

Considering their operations priorities, when Lidl is simplifying their operational mode to become a lean business, coping with the market fluctuations and dynamics of customer demand in a cost effective way, prices and better offers for customers are the vital targets that attracts Sainsbury's attention. The major investment and expansion of Sainsbury's to some extent has entered a plateau phase that what they want to do is attract more potential customers on the basis of their original scope of services and customers. For Lidl, that's obvious for them to keep in low prices with good or high quality, which is the purpose of customers, and step into more communities earning their money there.

According to the latest TNS grocery market share analysis (2009), compared to the same period last year, Sainsbury's has beaten the previous rising star, the budget retailers Aldi and Lidl with a increase in market share by 8.9 percent in the 12 weeks to 15 June when Aldi's and Lidl's market share rose by 8.7 percent and 7.5 percent respectively.

Conclusion

Reported by IGD Retail Analysis (2009), the grocery market in UK was worth £146.3 billion for the calendar year 2008, which has an increase of 4.8% compared to that of the year 2007. A relatively smooth period for food retailers is coming and will last for several years since the economic recession started. Sainsbury's and Lidl, representing typical sorts of food retailers, are good examples for those who would like to survive in this downturn while definitely taking their profits where they can. Customers and quality are always and will be forever the key words in retail industry. Considering what the customers require and what they need, providing the high quality products and services and ultimately earning the loyalty and support of customers everywhere is the principles in retail business.

References

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