Executive Summary

Recent years have witness a decrease in the prices of food in the UK due to competition and success of discounters. This study aimed to investigate the challenges that major supermarkets in the UK face due to the entrance of discounters in the retail sector, especially grocery market. The accomplished this goal by employing a quantitative study involving the administration of questionnaire copies to 100 participants drawn from major supermarkets in the UK such as ASDA, Tesco, Morrisons, and Sainsbury’s. 73 questionnaire copies were completed and returned The findings of the paper revealed five challenges to which discount stores expose mainstream supermarkets including disruption of business operation (56%), decrease of customer base (71%), aggressive price competition (74% of participants), resource strain (51%), and struggle for market share (59%). Among these five challenges, the major challenge was found to be aggressive price competition, which was mentioned by 51% of the participants. Besides, the findings of the study revealed strategies such as innovating structures (66%), establishing of high-priced private labels (73%), reducing price gaps (78%), limiting costs of operation (86%), offering variety of products (70%), forming strategic alliances (58%), and creating low-priced spinoff brands (81%). Reducing the operational costs was established to be the most effective approach of handling the challenges that discounters present to major supermarkets in the UK. The paper recommends formation of strategic unions, creation and raising of prices for premium, economy, and standard private labels, innovation to improve experience of buyers, and overhauling operational cost and business model for major supermarkets.

 

 

 

 

Contents

Section 1: Introduction. 5

1.1 Project Setting. 5

1.2 Research aims. 6

1.2.1       Primary Research Aim.. 6

1.2.2       Secondary Research Aim.. 6

1.3 Research Purpose. 7

1.4 Why the Topic Was Selected. 7

2.0 Section 2: Literature Review.. 8

2.1 Brief History of Supermarkets. 8

2.2 Brief History of Discounters. 8

2.3 Challenges Supermarkets Face from the Entry of Discounters. 9

2.4 Strategies for Addressing the Competition Posed by Discounters. 12

2.5 Summary. 14

3.0 Section 3: Methodology. 15

3.1 Research Philosophy. 15

3.2 Study Design. 15

3.2 Sample Selection. 15

3.3 Data Collection. 16

3.4 Data Analysis. 16

3.5 Research Ethics. 16

4.0 Section 4: Discussion and Evaluation. 18

4.1 Evaluation. 18

4.1.1 Response Rate. 18

4.1.2 Participants’ Level of Education. 18

4.1.3 Challenges Faced by Mainstream Supermarkets in the UK.. 19

4.1.4 Major Challenge Faced by Mainstream Supermarkets in the UK.. 21

4.1.5 Strategies for Addressing the Challenges Faced by Supermarkets in the UK.. 22

4.1.6 Major Strategy for Addressing the Challenges Faced by Supermarkets in the UK.. 24

4.2 Discussion. 26

4.2.1 Challenges Faced by Mainstream Supermarkets in the UK.. 26

4.2.2 Main Challenges Faced by Mainstream Supermarkets in the UK.. 27

4.2.3 Strategies for Addressing the Challenges Faced by Supermarkets in the UK.. 28

4.2.4 Major Strategies for Addressing the Challenges Faced by Supermarkets in the UK.. 29

4.2.5 Study Limitations and Future Research. 29

Section 5: Conclusion and Recommendation. 31

5.1 Conclusion. 31

5.2 Recommendations. 32

Section 6: References. 33

 

Section 1: Introduction

1.1 Project Setting

The United Kingdom’s grocery sector is considered among the most sophisticated sectors across the globe. According to Rhodes and Brien (2018), UK’s four major supermarket chains including Tesco, Morrisons, Sainsbury’s, and Asda continue to engage each other in fierce rivalry for consumers, with an ever increasing prominence associated with the discount chains such as Lidl and Aldi (Arjen & Gijsbrechts, 2014). Rhodes and Brien (2018) and USDA Foreign Agricultural Services (2016) assert that the UK’s grocery sector records the most robust growth within the retailing industry driven by contemporary grocery retailers. Discounters, online grocery retailing, and convenience stores are the models that continue to witness the strongest development, with the key chains opening smaller ones within the town and city centres, while restricting the growth of large-model outlets within out-of-town locations (Arjen & Gijsbrechts, 2014). Studies predict that the total value associated with UK’s grocery market will increase by 9.9% to attain £196.9 billion (Rhodes & Brien, 2018). Supermarkets and Hypermarkets are anticipated to make changes, with the aim of reflecting the changing preferences of shoppers. Rhodes and Brien (2018) assert that online grocery shopping or retailing will remain the largest growing retail channel with a rise of 68% within the next 5 years. Arjen & Gijsbrechts (2014) add that by the attainment of the year 2021, the value of discounters will amount to£24.9 billion. Discounters will continue being the rapidly growing retail channel as both value and quality are recognised by customers (Arjen & Gijsbrechts, 2014). Rhodes and Brien (2018) argue that by the attainment of the year 2021, discounters will claim £1.00 for each £8.00 spent on grocery products.

Recent years have witness a decrease in the prices of food in the UK due to competition and success of discounters (Argentesi et al., 2016). However, the vote by the UK to abandon Europe led to the weakening of the pound in a significant manner. Considering that the UK imports approximately 40% of all the food product consumed domestically, prices of food are anticipated to rise in the recent future owing to the weaker pound (Argentesi et al., 2016; Rhodes and Brien, 2018). In the past few years, UK has experienced a significant shift in where and how consumers decide to purchase their food items, with online shopping and discounters being winners (Argentesi et al., 2016). Discounters have been established to be effective in providing more options for buyers. For instance, Aldi launched “wine online” and “Special buys” in 2016. With the rise of discounters, superstores and hypermarkets are expected to reduce 3% within the next five years, as buyers choose to make their purchases in optional places such as the discount stores (Argentesi et al., 2016; Rhodes and Brien, 2018). As such, the emergence of discounters continues to threaten the existence of major supermarkets such as ASDA and Tesco in the UK

1.2 Research aims

This study aimed to accomplish the following objective:

  • Primary Research Aim
  • To investigate the challenges faced by major supermarkets such as Tesco and ASDA from the discounters such as Aldi and Lidl
    • Secondary Research Aim
  • To investigate the major challenge that major supermarkets face from the entrants of discounters
  • To investigate the strategies that can be embraced by supermarkets to address the challenges posed by discounters
  • To investigate the most effective approach that major supermarkets can employ in addressing the problems presented by discounters

1.3 Research Purpose

The purpose of this study was to establish the problems that large supermarkets faces due to the entrant of discounters like Lidl and Aldi in the grocery retail sector, with the aim of establishing strategies that can be employed to address these challenges.

1.4 Why the Topic Was Selected

Non-specialised stores contribute significantly to the economic development of UK’s retail sector. Argentesi et al. (2016) define non-specialised stores as shops that sell a range of items such as department stores, convenience shops, and supermarkets. In the 2016, non-specialised stores constituted only 19 percent of the UK’s retail business, but accounted for approximately 50 percent of retail turnover, as well as 45 percent of employment within the sector of retail (Rhodes and Brien, 2018). Being a significant part of the non-specialised stores, major supermarkets such as Tesco and ASDA contributes significantly to employment creation and UK’s GDP via retail earnings. As such, the selection of the study topic was informed by the need to ensure that major supermarkets continue to thrive within the UK’s retail sector.

 

2.0 Section 2: Literature Review

2.1 Brief History of Supermarkets

The origin of supermarkets can be traced to 1930 when Cullen unveiled a plan for a novel breed of enormous, cash only, non-delivery, as well as self-service stores (Ellickson, 2015; Messeghem et al., 2013). In this plan, Cullen recommended that the novel super stores be situated in the outskirts of major cities and towns to capitalise on low rents. Besides, these stores were to sell nationally advertised and branded products, and would focus on executing intense advertisements, whereby 20% of the business’ net profit would be spent on promotion (Ellickson, 2015). Cullen’s plan was based on the operation on low expenses and low margins, which in turn would compensate the difference in Volume (Ellickson, 2015). Other changes that were proposed in this plan were the transition to self-service, emphasis on advertising, low-cost warehouse district sites, and increased store size. Supermarkets also experiences benefits from the development of the nationally advertised brands that could not be executed by the incumbent chains. The shift in the tastes of consumer toward branded items sharply minimised the cost benefits to retailers who embraced the vertical integration model. Storage and transportation costs also decreased. According to Messeghem et al. (2013) and Ellickson (2015), the supermarket’s approach of locating on the town outskirts was facilitated by the spread of paved highways and automobile, while advancements in refrigeration enabled shoppers to make limited trips and super stores to hold enormous inventory volumes. King Kullen supermarkets are among the early supermarkets that preceded the contemporary ones.

2.2 Brief History of Discounters

Discounters emerged in the 1990s, especially in Germany with brands such as Lidl and Aldi (Messeghem et al., 2013). Their initial strategy involved the provision of low prices on specific assortment of majorly private-label goods.  Stores were overcrowded and possessed a low-budget feel, consumers felt that they were receiving value for money, which differentiated discounters from major supermarkets. As such, discounters were successful in disrupting the retail market of grocery in several nations. In their early stages, discounters performed well in the times when the spending of consumers was down. Messeghem et al. (2013) assert that these shops adopted a countercyclical appearance and they benefited from shoppers, who were budget-conscious during recessions. Therefore, mainstream retailers could manage to overlook the discounters and still retain between 80% and 90% of their entire market share. Currently, discounters have managed to grow rapidly and gain substantial market share in several Western countries, including United Kingdom, Turkey, Poland, and Denmark. According to Messeghem et al. (2013), worldwide discount stores are projected to raise the amount of store sites by 4.4 percent annually through 2020 relative to just 2.9 percent for major supermarkets and 1.6 percent for hypermarkets and superstores.

2.3 Challenges Supermarkets Face from the Entry of Discounters

Studies have made significant efforts in investigation the challenges that major supermarkets such as ASDA and Tesco face due to the entrance of discounters such as Lidl and Aldi (Jurgens, 2014; Gomez-Lobo et al., 2015; Hokelekli et al., 2017a; Hokelekli et al., 2017b; Vroegrijk et al. 2013; Kristopher et al. 2014). Gomez-Lobo et al. (2015) argue that the employment of price-aggressive discount format by chains such as Lidl and Aldi is effective in many Western economies. However, the success of this model continues to be a major concern for conventional supermarkets. According to Jurgens (2014), discounters not only possess a direct impact on the market shares of supermarkets, but also exert significant pressure to advance operational effectiveness and efficiency and reduce prices.

Jurgens (2014) highlights the factors that grant discounters a competitive edge over major supermarkets including provision of fewer classes or categories of products, stocking a range of products, provision of private labels or limited manufacture brands, relatively small stores that offer functional shopping environment. The authors add that discounters subject major supermarkets to intense price competition in that they can charge prices that are up to 60 percent lower relative to the prices offered by mainstream supermarkets, and about 40 percent lower relative to the conventional retailers’ private-label products. As such, this paper highlights the significance of the aspects of size associated with the new stores, choice of location, product range, and price.  However, the findings of this study are not based on the primary research conducted on participants from major supermarkets. In a different study executed by Gomez-Lobo et al. (2015), the authors focused on investigating the price effects associated with the entry of hard discounters. The authors accomplished their objective by using a database acquired from special survey of major supermarkets. The outcomes of this study revealed that prior to the entry of discounters, the prices of products were low, but increased upon the entry of hard discounters. The authors attributed this tendency to the need of supermarkets to compete effectively with discounters. However, as in the case of the study executed by Jurgens (2014), the study by Gomez-Lobo et al. (2015) does not focus on primary data acquired from respondents from the mainstream supermarkets.

In their study, Hokelekli et al. (2017a) established that discounters often pose the challenge of disrupting mainstream supermarkets even in the absence of acquiring a substantial market share from these retailers. The authors argues that discounters have their product assortment focused on essential needs of customers, and this enables them to sell a significant volume of individual products and dominate a product category. The authors also established that discounters presents the challenge of converting consumers into loyal ambassadors of their brands because they focus on value delivery, store hours, product assortment, overall shopping experience, and fresh goods. This finding is supported by the finding of Hokelekli et al. (2017b) that discount stores present the challenge of acquiring the market share previously owned by mainstream supermarkets owing to the ability of discounters to expand their assortment of goods, improve store experience, and grow profit margins. Hokelekli et al. (2017b) also support the ability of discounters to open bigger stores that have innovative features, expand their assortment of organic and fresh products, and sell private-label items that outshine established brands in terms of tastes tests. The authors add that in several markets discounters are scoring higher relative to the established firms when it comes to the issue of consumer advocacy. Discounters are more effective in widening their base of customers beyond the level of low-income shoppers to incorporate savvy, high-income buyers, who are increasingly moving away from consuming high priced products because they can acquire such products with the same value from discounters. These findings are also supported by the findings of Vroegrijk et al. (2013) and Kristopher et al. (2014). According to Kristopher et al. (2014), discounters provide private-label items at lower prices, which presents a significant challenge to mainstream supermarkets that offer branded products at higher prices. Kristopher et al. (2014) add that Lidl and Aldi customise their items to match the local taste preferences and provide a range of products such as personal care, pet food, breakfast cereals, and baby food, which are not provided by major supermarkets. Vroegrijk et al. (2013) support this argument by asserting that discounters focus on meeting a range of customer needs by providing fresh food categories like baked goods and produce prepared onsite, gluten-free, organic options, as well as luxury products like quail and lobster. The authors add that discounters limit the existence of novel items for a brief time, thereby creating an impression of exclusiveness concerning them and motivating consumers to purchase quickly to prevent them from missing out. Several discounters also provide extended hours opening and faster checkout service, which major supermarkets are unable to meet. As such, supermarkets continue to face significant challenges competing with these stores. Despite coming up with these findings, these studies resemble the previous ones in the sense that they do not focus on primary data from participants, but secondary data.

2.4 Strategies for Addressing the Competition Posed by Discounters

Hokelekli et al. (2017a) examined the battle between traditional retailers such as major supermarkets and discounters by focusing on the role of private label tiers. The authors analysed how the private label tiers of traditional retailers including premium, standard, and economy impact the competition between discounters and conventional retailers. The authors employed a representative panel dataset of UK household of between the years 2009 and 2010. The findings of this study revealed that private labels are not effective approaches for mainstream supermarkets when it comes to battling with discounters. Nevertheless, the study outcomes revealed that economy private label enable traditional retailers to acquire some share of market from discount stores, but cannibalise the standard private labels owned by conventional retailers. The study outcomes showed that standard private labels are the most effective approach when it comes to acquiring more market share from discount stores. In another study, Hokelekli et al. (2017b) explored the effect of private label pricing and proliferation on consumer demand. The authors derived profit implications for various scenarios including changing the prices of private label tier and adding or dropping a line within the private label tier. The outcomes of this study showed that the extension of line within the premium and standard private label cannibalise one another. The findings also revealed that retailers can benefit from increasing the price of the premium, standard, and economy private label. Nevertheless, as in the case of other studies, these researches do not employ primary data from participants. Besides, the authors only focus on limited approaches to battling discounters, which are the private label tiers. Contrary to these findings, the outcomes of the studies by Gomez-Lobo et al. (2015) and Jurgens (2014) revealed several approaches that mainstream supermarkets can employ in addressing the challenges posed by discount stores.

Jurgens (2014) recommend the revamping of mainstream supermarket’s costs and business operating model. According to the authors, this goal can be accomplished by improving the firms operating model and reducing the costs in a manner that allows the management to justify the residual price differential with discount stores to its shareholders and customers. The authors suggests various methods of accomplishing this objective. According to the authors, major supermarkets should focus on reducing the price gap with discount stores, particularly for price-sensitive items. This goal can be achieved by being competitive in areas considered most significant to consumers. The authors also argue that mainstream supermarkets should focus on scaling back their costs of operation by limiting the aggregate loss of unsellable products such as foods that are often discarded, employing labour in more efficient manner, altering the assortment to minimise the complexity and cost of supply chain, introducing private label goods, and negotiating pricing with suppliers. The authors also propose the redefinition of value proposition of consumers by focusing on the provision of high-quality items that meet consumer needs, helpful staff, a clean store setting, and prices representing fair value. Gomez-Lobo et al. (2015) add that major supermarkets should focus on innovation with the aim of improving the customer experience. This goal can be accomplished by employing technology in connecting more directly with buyers and creating personalized offers. The authors propose the creation of a spinoff discount brand by drawing clear boundaries to isolate the core business from the spinoff brand. Mainstream supermarkets can also accomplish this goal by investing heavily in launching novel brands.

2.5 Summary

Considering the findings of the literature above, it can be noted that discounters presents several challenges to major supermarkets. According to Jurgens, (2014), Gomez-Lobo et al. (2015), Hokelekli et al., (2017a), Hokelekli et al. (2017b), Vroegrijk et al. (2013), and Kristopher et al. (2014), discounters are subjecting mainstream supermarkets to intense price wars, stealing market share, offering a range of products that meet consumer needs, providing a rich shopping experience, offering private labels, disrupting traditional retailers, and competing for loyal consumers. The reviewed studies also reveal the strategies that can be employed by major supermarkets in addressing the intense competition to which they are subjected by discounters. These strategies are increasing the prices of the economy, premium, and standard private labels, revamping business operating model and costs, and creating a spinoff discount brand (Hokelekli et al. (2017a; Hokelekli et al. 2017b; Jurgens, 2014; Gomez-Lobo et al., 2015). However, the reviewed literature only focus on data retrieved from secondary sources such as databases. This study will fill this gap by focusing on the data acquired from participants, particularly employees from the major supermarkets. The paper will also focus on identifying other challenges posed by discounters and strategies for addressing these challenges apart from the ones found in the reviewed literature.

 

3.0 Section 3: Methodology

3.1 Research Philosophy

Denzin & Lincoln et al. (2008) define research philosophy as a belief concerning the manner in which data associated with an event should be gathered, evaluated, and applied. This study employed the interpretivist approach in accomplishing the study objectives. According to Creswell (2009), the interpretivist approach highlights the disclosure of actions that make sense in analytical manner, while illustrating the form of configuration related to such actions to yield observable results. The adoption of this approach contributed significantly to the interpretation of the research data acquired from respondents into significant information that can inform practice on ways of addressing challenges presented to mainstream supermarkets by the entry of discounters.

3.2 Study Design

Research design involves the overall strategy adopted by the researcher to integrate different study components in a coherent and logical manner (Stake, 2010). Quantitative study design was adopted in this study. This form of study design is employed in the quantification of the phenomenon under study by generating numerical data that can be converted into usable statistics. As such, the adoption of quantitative design in this study contributed largely to the quantification of the views of participants regarding challenges posed to major supermarkets by discounters.

3.2 Sample Selection

Sample selection involves picking the participants or subjects of the study (Silverman, 2016). Systematic random sampling was employed in selecting participants for this study owing to its ability to allow for effective representation of the target population in a study. 100 participants were selected to partake in this study, but only 73 managed to participate. Participants were drawn from major supermarkets such as Tesco, Asda, Morrisons, and Sainsbury’s among others. They were listed and the formulae below employed to select 100 participants:

Sample fraction = n/N; where n = required sample and N = population size

3.3 Data Collection

Data collection focuses on gathering information about the phenomenon under investigation from participants or subjects of the study. The primary tool employed in gathering data from participant was the questionnaire. According to Silverman (2016), the questionnaire technique is effective in gathering data that can be employed in quantitative studies. Besides, this data gathering method ensures user anonymity, which leads to the preservation of the privacy of study subjects.  The questionnaire method also permits scalability, thereby enabling the investigator to gather data from an enormous target population at a reduced cost Silverman, 2016).The researcher administered questionnaire copies to 100 participants, but only 73 copies of the survey were completed and returned.

3.4 Data Analysis

According to Ritchie et al. (2013), data analysis takes into consideration the assessment of data obtained from study participants or subjects into meaningful text or information. Descriptive statistics was employed in evaluating the data gathered from participants followed by the representation of this information in tables, charts, and graphs.

3.5 Research Ethics

The significance of research ethics in a study lies in its contribution to the research integrity (Silverman, 2016). The investigator ensures that the study adheres to ethical guidelines of a research in three ways. First, the investigator explained the purpose of the study and the significance of the study to the participants and mainstream supermarkets. Second, the researcher issues to the consent forms to participants prior to engaging them in the study, and explained to them that they were at liberty to renounce their participant in the study at whenever they wanted without penalty. Third, the investigator ensured the anonymity of respondents with the aim of preserving their privacy.

 

4.0 Section 4: Discussion and Evaluation

4.1 Evaluation

4.1.1 Response Rate

Out of the 100 questionnaire copies that were issued to the participants, only 73 questionnaire copies were completed and returned to the researcher. This turnout resulted into a response rate of 73%, as shown in figure I below:

Figure I: Response Rate

4.1.2 Participants’ Level of Education

The table below shows the level of education of participants who partook in the study.

Level of Education Number of Participants % No. of Participants
First Degree 13 18%
Higher National Diplomas (HNDs) 24 33%
Foundation Degree 30 41%
Other 6 8%

Table I: Participants’ Level of Education

In table I above, it can be noted that the participants with other levels of education foundation degree, higher national diplomas, and first degree were 8%, 41%, 33%, and 18% respectively. This information is represented in figure II below:

Figure II: Level of education of participants

4.1.3 Challenges Faced by Mainstream Supermarkets in the UK

Participants mentioned five challenges that the entry of discounters present to major supermarkets including aggressive price competition, struggle for market share, decrease of customer base, resource strain on the part of mainstream supermarkets, and disruption of operations of major supermarkets. This information is presented in the table below:

Challenge No. of participants mentioning out of 73 % No. of participants mentioning out of 73
Aggressive price competition 54 74%
Struggle for market share 43 59%
Decrease of customer base 52 71%
Resource strain on the part of mainstream supermarkets 37 51%
Disruption of operations of major supermarkets 41 56%

Table II: Challenges that Discounters Present to Major Supermarket in the UK

In table II above, it can be noted that aggressive price competition, struggle for market share decease of customer base, resource strain, and disruption of operations were mentioned by 74%, 59%, 71%, 51%, and 56% of the participants respectively. This information is presented in figure III below:

Figure III: Challenges that discount stores present to major supermarkets in the UK

4.1.4 Major Challenge Faced by Mainstream Supermarkets in the UK

In relation to the major challenge that major UK supermarkets often face due to the entry of discounters, 37 participants mentioned aggressive price competition, 13 mentioned struggle for market share, 9 participants mentioned decrease of customer base, 8 mentioned resource strain, and 6 mentioned disruption of business operation. This information is shown in the table below:

Challenge No. of participants mentioning out of 73 % No. of participants mentioning out of 73
Aggressive price competition 37 51%
Struggle for market share 13 18%
Decrease of customer base 9 12%
Resource strain on the part of mainstream supermarkets 8 11%
Disruption of operations of major supermarkets 6 8%

Table III: The Major Challenge that Discounters Present to Major Supermarket in the UK

In table III above it can be noted that disruption of operations, resource strain, decrease of customer base, struggle for market share, and aggressive price competition were mentioned by 8%, 11%, 12%, 18%, and 51% of the participants respectively. This information is represented in the figure below:

Figure IV: Major Challenge that Discounters Present to Major Supermarket in the UK

4.1.5 Strategies for Addressing the Challenges Faced by Supermarkets in the UK

Participants mentioned seven strategies that can be employed by mainstream supermarkets in addressing the challenges presented by discounters in the UK’s retail sector. These measures are innovating their structures to improve customer experience, creating high-priced private labels, reduction of price gaps between supermarkets and discounters, limiting costs of operation to allow low pricing of products, provision of a range of high-quality or customised products, formation of strategic alliances, and creation of spinoff brands at low prices. These outcomes are shown in the table below:

Strategy Number of participants mentioning out of 73 % Number of participants mentioning out of 73
Innovating their structures to improve customer experience 48 66%
Creating high-priced private labels 53 73%
Reduction of price gaps between supermarkets and discounters 57 78%
Limiting costs of operation to allow low pricing of products 63 86%
Provision of a range of high-quality or customised products, 51 70%
Formation of strategic alliances 42 58%
Creation of spinoff brands at low prices 59 81%

Table IV: Strategies that major supermarkets in the UK can employ to address challenges presented by discounters

In table V above it can be noted that creation of spinoff brands, formation of strategic partnerships, provision of a range of quality products, limiting operational costs, reducing price gaps, developing high-priced private labels, and innovating structures are mentioned by 81%, 58%, 70%, 86%, 78%, 73%, and 66% of participants respectively. This information is represented in the figure below:

Figure V: Strategies that major supermarkets in the UK can employ to address challenges presented by discounters

4.1.6 Major Strategy for Addressing the Challenges Faced by Supermarkets in the UK

In relation to the major strategy that can be employed to address the challenges presented by discounters participants mentioned majorly factors related to price. 9 (12%) participants mentioned innovating structures, 13 (18%) participants mentioned establishing high-priced private labels, 15 (21%) participants mentioned reducing price gaps, 17 (23%) participants mentioned limiting operation costs, 5 (7%) participants mentioned provision of variety of high quality items, 3 (4%) participants mentioned establishment of strategic alliances, and 11 (15%) participants mentioned creation of low-priced spinoff brands. This information is show in the table and figure below:

Strategy Number of participants mentioning out of 73 % Number of participants mentioning out of 73
Innovating their structures to improve customer experience 9 12%
Creating high-priced private labels 13 18%
Reduction of price gaps between supermarkets and discounters 15 21%
Limiting costs of operation to allow low pricing of products 17 23%
Provision of a range of high-quality or customised products, 5 7%
Formation of strategic alliances 3 4%
Creation of spinoff brands at low prices 11 15%

Table V: Major Strategy for Addressing the Challenges Discounters Presents to Supermarkets in the UK

Figure VI: Major strategy for addressing challenges discounters present to major supermarkets in the UK

4.2 Discussion

This study aimed to investigate the challenges presented to mainstream supermarkets such as ASDA, Tesco, Morrisons, and Sainsbury’s due to the entry of discounters such as Aldi and Lidl, particularly the grocery market. The study accomplished this goal in the subheadings discussed below:

4.2.1 Challenges Faced by Mainstream Supermarkets in the UK

This study registered a response rate of 73%. The level of education of participants who partook in the study were first degree (18% of participants), higher national diplomas (33% of participants, foundation degree (41% of participants), and others (8% of participants. The findings of the study reveals that the entry of discounters into the retail sector subjects supermarkets to five challenges. These challenges are aggressive price competition (74% of participants), struggle for market share (59%), decrease of customer base (71%), resource strain (51%), and disruption of business operation (56%). Some of these findings are in line with the findings of Jurgens, (2014), Gomez-Lobo et al. (2015), Hokelekli et al., (2017a), Hokelekli et al. (2017b), Vroegrijk et al. (2013), and Kristopher et al. (2014). In relation to aggressive price competition, Kristopher et al. (2014) and Gomez-Lobo et al. (2015) assert that discount stores offer private label items at lower prices, which pose a significant challenge to major supermarkets that sell national brands at higher prices. In relation to struggle for market share, Jurgens (2014), Hokelekli (2017a), and Hokelekli (2017b) argue that discounters steal the market share of mainstream supermarkets by advancing their business operational effectiveness, expanding their assortment of goods, and improving store experience, which major supermarkets have not accomplished. In relation to resource strain on the part of supermarkets, Vroegrijk et al. (2013) assert that discounters provide quicker checkout services, open for long hours, offer a range of products including organic options and fresh ones, which compels major supermarkets to strain resources such as labor for them to accomplish.

4.2.2 Main Challenges Faced by Mainstream Supermarkets in the UK

Considering that discounters expose mainstream supermarkets to several challenges, this study sought to establish the major challenge with the aim of identifying the key action area, where supermarkets should focus their efforts targeted at addressing problems presented by discounters. In relation to this, the finding of the study revealed that the major challenge that arises from the entry of discount stores in the retail sector in aggressive price competition (51%) triggered by discounters. The subsequent challenges were struggle for market share (18%), decrease of customer base (12%), resource strain (11%), and disruption of operations (8%) (see table II and figure III in the findings section). This finding is in line with the findings of many studies including Kristopher et al. (2014), Jurgens (2014), Gomez-Lobo et al. (2015), Hokelekli et al. (2017a), Hokelekli et al. (2017b) that highlight the aspect of intense price rivalry arising from discounters joining the retail sector.

4.2.3 Strategies for Addressing the Challenges Faced by Supermarkets in the UK

Participants mentioned seven strategies that major supermarkets in the UK can employ to address the challenges posed by the entry of discount stores in the retail sector. These measures are creation of low-priced spinoff brands (81%), formation of strategic partnerships (58%), provision of a range of quality products (70%), limiting operational costs (86%), reducing price gaps (78%), developing high-priced private labels (73%), and innovating structures (66%). Some of these outcomes are in with the findings of Hokelekli et al. (2017a), Hokelekli et al. (2017b), Jurgens (2014), and Gomez-Lobo et al. (2015). In relation to the strategy of creating spinoff discount brands and charging low prices for them, Gomez-Lobo et al. (2015) argue that major supermarkets should invest largely in launching novel items, with the aim of creating spinoff discount brands. In relation to limiting cost of operation, Jurgens (2014) argue that major supermarket should lower their costs of operation by negotiating for prices with suppliers, launching private label items, limiting losses associated with unsellable products, and employing labor efficiently. Jurgens (2014) also recommends the reduction of prices for price-sensitive items. In relation to the establishment of high-priced private labels, Hokelekli et al. (2017a) and Hokelekli et al. (2017b) proposes the establishment and increase of prices for the economy, standard, and premium private labels. In relation to innovating structures, Gomez-Lobo et al. (2015) recommend the employment of technology in creating personalized offers and connecting directly with buyers.

4.2.4 Major Strategies for Addressing the Challenges Faced by Supermarkets in the UK

In relation to the major approach that can be employed in handling the challenges presented by discounters, most participants mentioned the limitation of operation costs (23%). Other strategies mentioned by participants were reduction of price gaps (21%), establishment of high-priced private labels (18%), creation of low-priced spinoff brands (15%), innovating structures (12%), provision of variety of high quality products (7%), and establishment of strategic alliances (4%). This finding is in line with the finding of Jurgens (2014) that emphasizes the reduction of operational costs. Lowering operational costs provides a suitable platform on which major supermarkets can manage to reduce the prices of their items in a cost-effective manner.

4.2.5 Study Limitations and Future Research

The primary limitation of this study lies in its study design. Quantitative research method was employed in accomplishing the objective of this study. However, this study design limited the ability of the researcher to probe participants and acquire in-depth information about the phenomenon under investigation. As such, the study could not manage to provide detailed explanation of the responses generated by study participants. Future studies should focus on employing qualitative techniques such as interviews in order to obtain detailed information on this area of study. Such an undertaking will ensure that major supermarkets have adequate information about the strategies that should be embraced to limit or address challenges presented by discounters.

Section 5: Conclusion and Recommendation

5.1 Conclusion

This study aimed to investigate the challenges that major supermarkets in the UK face due to the entrance of discounters in the retail sector, especially grocery market. The first objective was to establish the challenges posed to mainstream supermarkets by the entry of discount stores in the retail sector. The findings of the paper revealed five challenges to which discount stores expose mainstream supermarkets including disruption of business operation (56%), decrease of customer base (71%), aggressive price competition (74% of participants), resource strain (51%), and struggle for market share (59%). The second objective was to investigate the major challenge posed by the entrance of discounters in the retail sector. Among these five challenges, the major challenge was found to be aggressive price competition, which was mentioned by 51% of the participants. The third objective was to investigate the strategies for addressing the challenges that discounters present to major supermarkets. The findings of the study revealed strategies such as innovating structures (66%), establishing of high-priced private labels (73%), reducing price gaps (78%), limiting costs of operation (86%), offering variety of products (70%), forming strategic alliances (58%), and creating low-priced spinoff brands (81%). The fourth objective was to investigate the major approach that can be employed in addressing the problems resulting from the entrance of discounters in the retails sector. In relation to this, reducing the operational costs was established to be the most effective approach of handling the challenges that discounters present to major supermarkets in the UK.

5.2 Recommendations

Considering the challenges presented to mainstream supermarkets in the UK by the entrance of discounters, this paper recommends the following four measures as remedies to these problems.

  • Overhauling or revamping operational costs and business operating model with the aim of limiting prices of products and offering a variety of quality, organic and fresh products to buyers. This goal can be accomplished by limiting the sale of unsellable products, negotiating with suppliers for pricing, increasing the number of opening hours, reducing price gaps for sensitive products, and creating a spinoff of discount items.
  • Innovating with the aim of improving experience of buyers. This objective can be accomplished by employing technology in liking directly with buyers and investing largely in the establishment of novel brands.
  • Creating and increasing prices of premium, economy, and standard private labels, with the aim of competing effective with discounters in terms of pricing. Apart from focusing on offering national brands, major supermarkets should also provide private labels and charge them highly for the tiers of economy, standard, and premium
  • Forming strategic alliance with the aim of enjoying economies of scale and creating barriers to entry for more discounters. Major supermarkets should establish strategic business coalition by focusing on reducing the costs and enhancing economies of scale in the areas of supplies, prices, transportation, and distribution in order to subject discounters to tough rivalry and limit further entry.

 

 

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