As a result of the price war, profitability for the UK industry as a whole has suffered. Traditional UK chains have made deep price investments, especially for known value items (KVIs) that they hope will draw people into stores. Despite their more limited ranges and foreign brands, the discounters’ formats increasingly appeal to a growing share of price-minded consumers. In the UK, traditional retailers like Sainsbury’s, Tesco and Asda also face intense competition from the rise of discount retailers including ALDI and Lidl. And now Amazon is testing small-format grocery stores under its name. Yet the traditional chains are expected to lose market share over the next couple of years to fresh format and limited-assortment discount chains. Traditional chains such as Safeway, Kroger and Ahold Delhaize have turned to price reductions as one major defensive move, which has contributed to profit margin erosion over the past five years (see Figure 2). ALDI has been winning in the center-store, nonperishable section with an emphasis on private-label products, and now is making headway in produce and other fresh items. Traditional grocers in the US now face aggressive, discount-oriented competitor ALDI from Germany, with Lidl hard on its heels, along with Save-A-Lot, Dollar General, mass merchant Walmart and other homegrown firms touting low prices.

Sandeep Heda, a partner with Bain's Retail practice, outlines four key areas where retailers can focus to improve price perception. Almost half of monthly grocery spending, on average, goes to stores that are not the consumer’s primary store, with many shoppers buying from three or more retailers, Bain’s survey found (see Figure 1). And it’s easier than ever for consumers to spread their spending among different grocers. “Best value” and “lowest prices” are the first and third most important factors in choosing a grocer, according to a recent survey of nearly 2,200 consumers in Atlanta and Washington, DC, by Bain & Company and ROI Consultancy Services. In the US, for example, food deflation over the past year stems partly from low oil and grain prices but also from cutthroat competition.Ĭonsumer preferences reinforce the trend. Grocery chains in many countries face intense price pressures due to the rise of competition from new entrants with discount-heavy business models, mass merchants and online channels.

Price perception definition