The convenience market has been fertile ground for the multitude of smaller channel specialists in the past. However, competition is hotting up as the ‘big players’, such as Tesco and Sainsbury’s, have now moved into the market.
This Insight looks at how these larger retailers are using promotions to draw customers into their smaller format stores.
Brand View has taken data from the last six months from various drinks categories* to discover what evidence there is of these big players behaving differently from the smaller, independent channel specialists.
Tesco and Sainsbury’s promotional prowess
What makes the big players stand out versus independent convenience retailers is the scale of promotions across their estate, with 70 per cent of products on promotion during the selected approximately half the time, and at around a 25 per cent depth of discount.
A higher average number of promotions on each product is another factor which marks the big players apart from the competition.
This scale of promotion is even more extreme for Tesco Metro and Sainsbury’s Local, where we see around 10 per cent more products on promotion overall, with these products spending an additional 10 per cent of time on promotion than the competition.
Independent convenience retailers finding their niche
The independent retailers appear to fit into three separate clusters of behaviour. We have coined these The Preservers, The Balancers and The Dynamics:
(Premier and Best One. Light and prolonged promotions on a small section of the range)
Products on deal in these two stores were on promotion for an impressive 50 per cent and 60 per cent of the period, but these products only accounted for 7 per cent and 24 per cent of the range. The average depth of discount for these stores was the smallest at 11 per cent and 16 per cent.
(Spar South and Costcutter)
These stores sit in the middle of the scale, close to the average for range on deal, depth of discount, time on promotion and frequency of promotion.
(Budgens and Londis. Targeted and brief, but deep cut promotions)
The stores compete by offering very powerful promotions with by far the highest average depth of discount, at over 30 per cent. However, the average product is only on deal for a relatively short period.
Tesco Express has become increasingly independent
When walking into a Tesco store, do you expect to see the same products at the same prices regardless of the format?
It is a common perception that convenience stores appear to be more expensive than a retailer’s ‘main estate’. This can be explained by the small volumes these shops trade and their prime locations.
The analysis comes with the caveat that, while the categories analysed are characteristic of the rest of the store, they do not represent the entire store.
There has been a trend of increasing numbers of products (approximately 20 per cent year-on-year) across all store formats.
What is more interesting to note is that the number of products unique to the Express format has increased at a greater rate than the total number of products. This is indicative of the format maturing and Tesco Express becoming a store in its own right, not just a condensed version of the main estate stores.
* A product is described as ‘on deal’ if it has seen at least one promotion in the period.
* Categories: ‘Beers, Lager and Cider’, ‘Carbonates’, ‘Energy Drinks’, ‘Flavoured Water’, ‘Juice Drinks and Smoothies’, ‘Milkshakes’, ‘Squash’, and ‘Water’
Tesco Express averaging three per cent more expensive than Tesco’s main estate
The Price Index graph highlights the average promoted price of products that are in both Tesco store formats. Despite a lot of periodic variation, Tesco Express remains on average 3 per cent more expensive than main estate stores.
This compares to a consistent 5 per cent base price premium in Tesco Express compared to its main estate. From this we infer that promotions in Tesco Express provide a greater depth of discount.
A striking trend is how prices of Express products are increasing uniformly in Tesco’s main estate and in its Express stores over the last three months.
Convenience is widely cited as a major source of growth for the big players. As a result we are seeing large scale promotional strategies within their convenience format stores. This behaviour makes it difficult for independent convenience specialists
to compete directly.
The significant difference in the scale of promotions between Tesco Express and Sainsbury’s Local leaves traditional convenience with the challenge of competing on assortment and everyday pricing.