Second “Bill’s Blog

Welcome to my second blog. As promised in my first blog I will endeavour to complete my blog weekly reflecting on the activity during the week and choosing one subject to debate further. It is my hope that this will create a forum to debate topical industry issues. Since last week sales of my book; “Sold Out” have continued to grow and a re-print is now ready to go into circulation.

In a week when Nielson published data that showed that the retail market is growing at a slower rate than inflation, which implies that volume is down, it seems to me that a good topic to debate is the position of the big four supermarkets and their impact on the wider market. But before that just a few other stories:

Visa predict that next Monday will be the busiest online shopping day of the year with transactions rising 21% year on year. Will all the products be delivered before Christmas?

Is the Co-Op to blame for the 900 job losses at Hovis-owner Premier Foods bakery in west london? Very sad as I use to visit that bakery as a young buyer in the 70s.

Well done Asda rewarding 175,000 workers with a £17m festive thank you with £20 gift vouchers and 20% discount, not such a nice Christmas for the Comet staff!

Now moving to the big 4 Supermarkets:

Not content with their strangle hold on food which has decimated the number of butchers, greengrocers and bakers in our towns, the supermarkets now sell all the non-food things we used to buy in the High Street. Books, clothes, homewares, electrical goods and toys can be popped into your trolly with the weekly shop. They are even honing in on specialist services and opening up opticians, dental surgeries and medical centres.

Whatever your view on this - that is convenient or downright destructive - what is clear things are only going one way! Or are they? Have the supermarkets mis-read the trends and is their profitability about to be on the slide? Recent Nielson data revealed that they are growing at less than the rate of inflation. That means a volume decline. Yet they are still adding space or capacity into the market. The simple law of economics of supply greater than demand means that prices will come down and so will profits.

Couple this with the fact that the real growth for these companies is coming from convenience or C stores and on-line shopping, both growing at 20% year on year according to J. Sainsbury, that means their superstores must be in decline. Yet they are all adding more space. C stores and on-line are both less efficient as channels than the capital intensive superstores which means sales are switching to less profitable routes to market.

Retail is in the middle of the perfect storm: Consumer confidence is at an all time low, macro economic conditions are poor and customers are switching to propositions that fit their current requirements. these conditions have resulted in a polarisation of performances: Aldi and other discounters are growing at high double digit rates and at the other end Waitrose is outgrowing the big 4 appealing to the affluent customers. In my opinion these conditions mean that the big 4, in the middle ground, are squaring up for a big big price war!

The winners will be the customers with lower prices. The losers will be investors as returns on capital employed start to fall. In addition there will most probably be another company that goes bust. That company I believe will be Ocado as the supermarkets get more and more into on-line shopping in an environment where margins are squeezed an on line food specialist will not survive.

Not good news for those employees when, not if in my opinion, that happens. What are your views?