Did Porter Predict the Rise of Aldi and Lidl?
(Originally published in January, 2016)
One of the 5 defining factors of the competition model is the threat of new market entrants; the UK supermarket sector was widely used as a live example of high barriers. Well that has been blown apart with Aldi and Lidl taking the sector by storm in the last 10 years, barriers to entry may as well have not existed.
Is it any wonder then that Waitrose has recently announced its intention to take on the budget stores whilst retaining a premium offering? This notion would have had you kicked out of the strategy lectures I attended. The idea of being ‘stuck in the middle’ would give undergraduates nightmares but here we are 10 years later and the differentiation of supermarket propositions has become a blurred line.
Have we reached a point where a business can be everything to everyman? Or have supermarkets fallen into the very trap that Porter said they would?
There is no doubt that the consumer has become price savvy and expects the best deal, Waitrose used to stand out as a more pleasant shopping experience than some supermarkets but as we increasingly turn to online solutions the physical store quality is less of a factor. Booths is the only supermarket I take any pleasure in visiting and part of that is to enjoy the cooling mist of the veggie section and briefly imagine I am in an 80s music video. For the life of me I can’t work out what their proposition is but the Aldi that opened opposite doesn’t appear to have caused any real decrease in footfall.
What then dictates where people actually do their shopping?
I do my shopping at the nearest shop; it happens to be a Co-Op Local. It is convenient and only marginally more expensive than going out of town – I will happily pay 2p more for a tin of beans if it means I don’t have to endure a trip to the ‘supermarket’. As a keen cook if I am preparing something special then I will expect to go the extra yard to find the quality ingredients I look for and understand the convenience store won’t stock.
It doesn’t take a genius to work out that the arrival of a new entrant who is able to gain market share in an already saturated sector is going to cause some ripples, let alone 2 of them. Perhaps if supermarkets had been less concerned about building 185,000sq foot stores filled with product lines no-one is ever going to buy they might have focussed on offering what consumers actually want. My next survey might be something like “30,000 product lines of which only 1% sell” and judging by my monthly shop it’s more like 0.1%. Hardly surprising 2 new entrants offering the 50 products people actually buy on a regular basis were able to ‘disrupt’ a market.
Give me the data from the big 4 loyalty cards and I would open a chain of stores that stocked the top 10% of items locally and provided an online service to meet the lower demand for the rest.
What we have learnt in the last 10 years is that supermarkets have effectively killed off the specialist high street shop by trying to be everything to everyman. Now when I am cooking something special and want to buy some bone marrow to go with my porterhouse steak I can’t because Tesco don’t stock it and my butcher went out of business.
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