Full interview at inpractise.com

We recently discussed effective strategies for incumbent grocery retailers to stop discounter market share growth, and the role of price positioning specifically as one option.

According to the former Vice President, Fresh, Frozen & Chilled at Asda, price is a crucial variable when competing with a discounter. Specifically, price re-basing and profitability re-basing is the surest way to stop a discounter from taking market share.

This raises the question today where Aldi and Lidl are a little less so, I think they have far fewer stores than Aldi in the U.S., but there may be a similar story playing out today with Walmart on its home territory. To get back to your comments in the early part of our call, you mentioned that the challenge for the incumbent retailers in the UK still remains. Aldi and Lidl are still growing like-for-like [sales]. They’re still taking market share. As we discussed, once the horse is out of the barn, it’s very hard to stop. What challenges does one face as someone within one of the major mainstream retailers? What challenges do you face now to meet this threat head on?

A lot of it will come back to that recognition, that you’re going to have to do something different. That potentially, you’re going to have to rebase the profitability of the organization, but for the long-term.

A long-term rebasing of profitability.

A rebasing of profitability in the short to medium term to pay back in the long-term. I advocated at Asda, as we needed to spend 300 – 400 million pounds to rebase our price position. Again, particularly in the categories of meat, produce, bakery. The areas that customers buy on a regular basis. That would have rebased our profitability. We’d have seen an increase in volume and an increase in customers. How long it would have taken for those customers to react and to see a volume that would have delivered a same cash GP rather than just a percentage GP, is difficult to estimate. It comes back to a belief in direction because five years down the line, from me leaving Asda. I think they are probably operating at a similar profit level to what the rebasement would have been five years ago. The business is on a completely different trajectory. I also think whilst the collateral impact, take meat for example, we were losing 150-grand a week of switching from Asda to Aldi. £150,000 a week. You can track that through Neilsen, fairly sophisticated and pretty accurate. It was continuing to rise.

I think re-benchmarking our prices or repositioning our prices would have meant that we’d seen an influx, a stop of that loss. Also, we’d have won business from Morison’s, Sainsbury’s and Tesco. I think we’d have seen a double whammy. It’s as simple as that. We’ve already articulated that the grocery retail margins at six and seven percent were unsustainable when a competitor like Aldi comes into the market. Then there are bigger issues at play. Wal Mart acquired Asda in 99’. It represented eight percent of their turnover. I’m not sure exactly what percent of their profit, probably slightly more. Given the higher than average overall margins. Clearly, they didn’t demonstrate a support for Asda from probably around 2012/2013. In theory, the biggest grocery retailer in the world acquiring somebody in the UK. You may be thinking, they may look to pump/prime the business. There was no significant investment coming. As has played out now, they’ve been trying desperately to find a way to get rid of their stake.