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Overheard in Waitrose: supermarket dinosaurs are out

The big four grocers are losing out to the top and bottom end of the market as the way we eat changes

It is no surprise that a new Facebook page  – Overheard in Waitrose – has gone viral with hundreds of thousands of likes in a matter of days. Some of the posts are so close to the middle-class bone they are as painful as they are funny: “Orlando, that’s enough blueberries, I only need them to go on top of the venison”, and “Mummy, what are those things next to the star fruit and lychees?” “They’re called apples, darling.” Or this one: “Noah! You’ve had enough manchego for one day.”

Most of the entries are spoofs, of course, although said to come from the chatter that Waitrose staff overhear. Yet, like the best satire, the anecdotes give a brilliant snapshot of how the public’s shopping and eating habits are going through one of the biggest revolutions for more than 50 years; a revolution that is shaking up the dinosaurs of the grocery market.

And it is these changes in our tastes, the impact of the recession, online technology and a host of other factors that were behind the big fall in profits reported by Tesco last week. The 6 per cent fall in profits and sales sent their shares diving to a new low for the year.

No wonder  – Tesco’s core UK market share has fallen to a near 10-year low, trading profits were 10 per cent lower and, in the main UK stores, sales were down 3 per cent on the last three months of the year. Bosses warned that sales may not pick up again this year.

In a nutshell (a macadamia one, of course), Tesco’s problem is this: while Orlando’s mother buys her blueberries at Waitrose, she is just as likely to go shopping for cut-price cava at Aldi or loo paper at Lidl. Half of Aldi’s customers are in the more affluent AB group and a third in the ABC.

While Waitrose nibbles away at Tesco’s market share at the top, it’s the giant German discounters, Aldi and Lidl, which have eaten away at the supermarket’s core market with aggressive price cuts. For Tesco to try to compete with them is like British Airways going head to head with Ryanair. Nor does the assault by Aldi and Lidl show any let-up; they have doubled their share of the UK market over the past decade and plan to double it again over the next few years. Aldi now has a record 4.6 per cent share and is opening a store a week, targeting empty space on the high street, while Lidl is also at a record 3.4 per cent.

Yet Tesco is a mammoth compared with its competitors, with nearly a third of the market. Indeed, the big four – Tesco, Asda, Morrisons and Sainsbury’s – have between them the lion’s share, with 77 per cent of all grocery sales. By contrast, Waitrose, which may have a fantastic image and is running rings around its bigger rivals with marketing tricks such as its loyalty card, has 5 per cent.

The difference is that shops at the top end, such as Waitrose and Marks & Spencer, and the discounters at the bottom, are still gaining customers, whereas the big four are not. All four showed big falls in sales over the past three months and blamed a number of reasons, but mainly the  cut-throat discounters.

Post-recession, the public is as penny-conscious as ever as real incomes have yet to recover from their biggest drop in decades. But the way that people eat has changed dramatically: we eat more sandwiches and ready-made meals, we don’t do one big weekly shop to avoid a big fat bill. Instead, people buy less and more often, they go out to eat more, buy more online, more at local markets and less out of town.

Can the behemoths hit back?

So can Tesco win Orlando’s mother back? Tesco’s boss, Philip Clarke, says he will keep going with price cuts to wage war with the German discounters. But analysts fear that if Tesco – and the other big three – slash prices any more they could reduce profit margins and damage balance sheets without lifting sales. Aldi and Lidl, which have deep pockets, will just hit back with more price cuts, as they have done with their recent fine wine offers.

Michael Sheridan, a retail expert, says Tesco can win shoppers back by focusing on three fronts; learn from Waitrose and clean up its nasty image with friendlier staff, use its vast infrastructure to build up the best online presence, and tailor more shops to local demographics – as it has done recently by selling bicycles at Watford. And, he adds, “online shopping which should be more like room service”.

The dinosaurs should also take note of the genius behind Waitrose’s loyalty card; shoppers are given rewards at the point of sale rather than the clumsy, retrospective points system used by Tesco or Sainsbury’s ... That’s so yesterday. Today’s shoppers are  fickle and price-hungry, they need to be rewarded just for turning up. As reported on Overheard in Waitrose: “I do like Sainsbury’s, it keeps all the riff-raff out of here.”