Kevin Threlfall: Store wars will end in battle for survival

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People have short memories. They forget that there have been supermarket wars in the past. In the 1970s Kwik Save was the Aldi of the day and with a limited range of 600 product lines it became the cheapest retailer around. They quickly expanded from their base in North Wales as customers, desperate to cut their shopping bills, began leaving Tesco and Sainsbury’s in their droves.

Raging inflation had caused prices to double between 1971 and 1976 and housewives were finding it difficult to make ends meet. Many discount operations, such as my own Birmingham-based Lo-Cost discount stores, flourished.

By July 1977, Tesco had finally suffered enough and decided to abolish Green Shield Stamps, instead launching a price offensive with “Operation Check-Out”. With the price differential lowered between the discounters and the supermarkets, customers slowly drifted back.

Kwik Save had grown into an estate with over 800 stores but as the hypermarkets of the 1980s and 1990s started to spring up, their days were numbered. Bigger was better – but massive was better still.

Tesco could do no wrong, and with Sir Terry Leahy taking the helm in 1997, their share of the UK grocery market grew from 20 per cent to over 30 per cent. It was a remarkable achievement, helped in part by the introduction of Clubcard but also by the lacklustre performance of the competition.

Sainsbury’s had let their market share slide as they struggled to find the right management and Morrisons got into a dreadful mess trying to digest the acquisition of Safeway.

Everything in the garden was rosy for Tesco and nothing, it seemed, could stop the retail juggernaut going from strength to strength.

But retail doesn’t work like that. Nothing stays the same for long, and slowly but surely the climate started to change. The massive European chains of Aldi, Lidl and Netto started to get a foothold in Britain as they became more and more attractive to cash-strapped customers.

The weekly pilgrimage to the massive out-of-town superstore slowly started to lose its attraction. People were becoming cash-rich and time-poor. More and more women were working and having to fit shopping in with all the other chores, and shopping locally began to gain traction.

Our own chain of One Stop convenience stores benefited from this social change, and Tesco – seeing the opportunities for growth – bought our stores and formed the basis for the Tesco Express expansion as well as continuing with the One Stop format.

Retailing changed for ever, though, in 1995 when Amazon and eBay came onto the scene, because suddenly it became easy to purchase goods without leaving the comfort of your own home.

Electronic retailing or “e-tailing” now boasts over three billion users since its inception less than twenty years ago.

All the major retailers now deliver direct to people’s homes, which is great news for the customers but has a distinct sting in the tail for the future of the supermarket industry.

My wife buys most of her weekly needs from Tesco online and is convinced that she spends less money because she is not tempted by the special offers in store.

Even with charging for delivery, there is absolutely no way that the supermarkets make anything like the profit they get from a customer visiting the store. If the growth of convenience retailing and online shopping wasn’t enough to cope with, the supermarkets were hit with another headwind with the banking collapse of 2008.

With oil and electricity prices going through the roof, it was as if we were back to the 1970s – only this time the problem was not raging inflation but stagnant wages. The cost of living was exploding but wages were going nowhere.

The European discounters had by now built a credible presence and housewives found they could save between £20 and £30 a week on their groceries without compromising on quality and freshness.

There was one final twist of the knife for the supermarket industry in the form of bargain basement stores. Wilkinson, Poundland, B&M and Home Bargains are all chains that offer supermarket products at heavily discounted prices – and the numbers of stores are growing.

As all of this was starting to hurt supermarket sales, the major retailers were opening more new superstores: Tesco, Sainsbury’s, Asda and Morrisons all competed with one another to win the space race.

Unbelievably, stores are now being mothballed because there are too many for the declining demand.

So what is the future for the UK supermarket industry?

Well, we know it is being squeezed, anaconda-style, by the European discounters who intend to double their store numbers over the next ten years.

We know that the jackals of convenience retailing will continue to grow in number as customers shop more locally.

We know that online retailing is still growing apace and every new customer is potentially one less visiting a supermarket.

We know that the bargain basement hyenas will continue to nibble away at the edges of retail.

And we also know that there are too many stores for a grocery market that is hardly growing in size. This has resulted in all the major supermarkets losing market share when they need growth to keep their shareholders happy.

Put all of this together and eventually there has to be a war. The resulting blood will trickle down into housewives’ purses as dog eats dog and they fight for survival.

The customers will win, the shareholders will not.

• Kevin Threlfall is the founder of the One Stop chain. His autobiography, One Stop, One Life is out now, published by Icon Books priced £12.99.