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Will Sainsbury's or Amazon Win The Battle For UK Groceries?

11/04/2016 10:56

I was surprised to see that the Wall Street Journal reported negatively on the takeover of Home Retail Group (including Argos) by the supermarket giant Sainsbury's. The WSJ believes that the fight for control of Argos may turn out to be a pyrrhic victory as there is no apparent reason why a grocer would want to join forces with a non-food retailer.

Of course they might be right. History is littered with pointless takeovers and this one is cleverly engineered to reduce debt on the Sainsbury's balance sheet, but I think there is a revolution approaching in grocery retail and this may have been a shrewd move.

Take a look at some numbers from the research firm Kantar Retail that I found in a blog by Phil Crossley of Teleperformance:

"Aldi and Lidl are both still growing strongly in the UK, 14.4% and 17.7% respectively last year, but I think it is interesting to observe that the decline of the big players has almost entirely stopped. Sainsbury's grew 1.2% and the Tesco decline has slowed to just -0.2%."

The entire UK supermarket sector grew by 1.1% last year. Even in uncertain times, everyone still needs food. However the numbers here show that the trend towards everyone rushing to the discounters is changing. The collapse of the big brands has been reversed, leading to the possibility that the discounters have more or less found their market share.

Aldi and Lidl are still aggressively expanding, but as Kantar Retail suggests, it is highly unlikely that the majority of shoppers will do all their shopping in discount stores.

Now connect the changing nature of how customers want to shop for groceries with the Sainsbury's and Argos deal. Argos has been a customer service pioneer in the UK, with innovations such as allowing customers to see stock levels online and click and collect - they have led many of the omnichannel innovations that most retailers are still struggling with.

We also know that Amazon is circling. The Amazon Pantry service already has over 4,000 grocery products available in the UK, however they are not yet offering fresh food. The Amazon Fresh service in the USA does this however and has been phenomenally successful.

Amazon understands what customers want and how to drive loyalty with their Prime programme. Imagine how much of the grocery market share they could win overnight if all their UK-based Prime customers started using Amazon because the Fresh service launches in the UK? They don't release the actual numbers of Prime customers, but it is measured in the tens of millions globally and in the week before last Christmas they added 3 million more.

So surely the executive plan at Sainsbury's is to head off Amazon before they bring Fresh to the UK by utilising the experience Argos has of offering a great retail experience?

They will have challenges ahead. Amazon can directly transfer their experience from the USA, but Sainsbury's needs to integrate an entirely different business before being able to do anything strategic with their grocery service.

I'm sure that the Argos takeover is based on the customer experience grocery customers will be expecting in a year or two, not a bungled corporate accounting exercise. If Sainsbury's get it right and build a fantastic omnichannel grocery experience before Amazon then they have a chance to lead the market. If not, well I'm sure Amazon will come and do exactly what they do best - the big supermarket brands should be thinking ahead because a big change is coming.

This blog originally appeared on Engage Customer.

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