No single event in the history of UK
retailing has had such a profound and immediate impact as the arrival of Wal-Mart. 
Reaction at a corporate level has dominated the business headlines: massive PR activity,
knocking copy in advertising, price cuts, merger and acquisition activity both real and
talked about. Can one company really change the face of the UK’s biggest

We now have the opportunity to gauge
Wal-Mart’s impact from the consumer’s point of view.  In its annual survey
of customer loyalty, Verdict’s How Britain Shops looks at all the major sectors of UK
retailing in terms of shopping patterns. The first report published in January 2000
focuses on Food and Groceries.

The research highlights the extent to which
Wal-Mart has taken what was already a very strong retailer in Asda, and injected
significant forward momentum to drive it faster. Verdict says that Asda is the star
performer in this research, overtaking Sainsbury’s to take the number two slot in
share of main users.  Asda attracts the highest loyalty rating among the superstores
and has improved its rating by customers across a range of factors, particularly on price.

However, a key message from this research
is that across the grocery sector as a whole, loyalty has been eroded over the past twelve
months. Verdict says that this is the inevitable result of a price war which helps to
destabilise shoppers’ perceptions and behaviour.  When a retailer launches a new
initiative some peripheral ‘floating shoppers’ will be attracted to change their
allegiance.  With the scale and frequency of price initiatives increasing, loyalty is
being loosened.

A year ago, Verdict found that 75% of
shoppers were loyal (measured as shoppers thinking their main store is the best). 
This year the figure has fallen to 70%. In other words, 30% of shoppers (equivalent to 7.2
million households) would switch their main food store if they were free to do so.

One thing that has not changed since last
year’s research is that loyalty cards are not very significant in fostering loyalty.
The report says they mainly allow retailers to target discounts at their most important
customers, and to collect detailed information about the shopping behaviour and

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The research, covers all of the major
retailers, examining how loyal their customers are and what drives this fidelity. It
establishes which customers would prefer to shop elsewhere, the store they most desire to
use and what they see as being attractive at this alternative retailer. The results paint
a clear picture of the strengths and weaknesses of the leading and middle-sized players,
as well as indicating likely winners and losers in terms of customer share. The message to
all retailers is clear: they will have to work much harder to keep their customers. The
real challenge is achieving this without increasing price.

Verdict’s survey indicates that
convenience and price are now the two most important issues in building customer loyalty,
closely followed by range. However, customers also expect these to be combined with good
quality products and high levels of service. Retailers failing to consistently deliver on
these areas are increasingly at risk from losing customers to stores that do.

The issue of price is now more important to consumers than it was a year
ago; an indication of increasing expectations driven, in part, by strong media attention.
Over 50% of dissatisfied shoppers claim that more competitive pricing is one way in which
their current retailer could keep their custom. Last year only 33% of people mentioned
price as an area that needed to improve. It is clear that retailers must continue to move
beyond short term promotions towards a policy of continuously competitive pricing.

Some of the highest levels of loyalty were
found at the food discounters, such as Lidl and Aldi, where price expectations are
regularly met. Of the major supermarket multiples, Asda leads the field closely followed
by Tesco. Sainsbury fares less well, whilst Safeway has the lowest level of loyalty in the

According to Verdict, there is an
increasing tendency for the larger players to compete directly with each other. This is
primarily because concentration in the sector remains high –  almost 70% of shoppers
use one of the big 4 chains (Tesco, Asda, Sainsbury or Safeway) for their main food shop.
This figure is substantially higher than last year when it was just 62%. It is also
revealing that, in terms of share of main users, Asda has overtaken Sainsbury to gain the
number two position below Tesco.

Despite the high levels of concentration a
high level of shopping around continues to characterise the food sector. The typical
shopper uses almost three stores (one main and two others). This exposure to competitors
and willingness to make use of alternative stores demonstrates the fragility of loyalty
and helps to make even the most powerful retailers vulnerable. By frequently shopping
around, consumers are able to continuously assess their main store against the competition
and have several alternative outlets to use if it fails to measure up.

The conversion of visitors to main users
serves as an indication of success in attracting the lion’s share of spend from
consumers who visit the store. Asda, Morrisons and Tesco perform best, converting well
over half of their visitors. Sainsbury and Safeway have reasonable rates at just over 50%,
whilst Somerfield achieves a very poor figure at only 25%. Iceland and Marks and Spencer
have the lowest conversions, mainly because their specialist product offerings do not
facilitate a full shop.

Verdict notes that smaller, specialist
retailers who focus on particular areas perform strongly in the survey. The Continental
discounters (Aldi, Netto, Lidl) are all highly regarded for their keen prices, which in
turn generates significant levels of loyalty. Meanwhile, Waitrose comes top for customer
service, layout and store ambience.  Despite its recent troubles Marks and Spencer
outperforms all other food retailers on quality. It is important to keep in mind, however,
that these retailers are not positioned to serve the mass market, enabling them to be
highly focused on their relatively small customer base.

The report examines the dynamics of each
retailer, investigating the change in share of main users since last year’s survey,
potential future changes, and the strengths and weaknesses that drive these shifts.
Potential future changes are measured by looking at what would happen to the share of main
users if all customers could use whichever shop they prefer as their main food store. Each
company obviously gains some customers and loses others, the result of which is a net
position. Clearly this analysis is theoretical, focusing on measuring vulnerability by
illustrating what could happen.

Tesco is the undisputed market leader in
the food and grocery sector. It is particularly strong in the South and is successful in
attracting AB customers. Although, it is uniformly well regarded for convenience, price
and range, almost a quarter of its customers would prefer to shop elsewhere. Despite this,
it could still make a small net gain, attracting slightly more consumers than it stands to
lose. In the light of the increasing competitive pressure, Verdict believes that Tesco has
done well to maintain its high share of main customers on last year.

Asda has been the star performer. In terms of main user share the company
has forged ahead into second position, establishing a comfortable lead over Sainsbury.
This has mainly been attained by Asda’s strong growth on last year, rather than
Sainsbury’s losses. The company is extremely dominant in its Northern heartland and
does well in enticing its key target market of the younger working class family. Although
growth has been rapid it appears to be sustainable. The research reveals significant
latent demand for Asda, suggesting that store openings will allow substantial market share
to be captured.

Sainsbury has come under intense pressure.
The company does well in generating loyalty from its high levels of quality which appeal
to its more upmarket customer profile. However, it fares less well on price with only
around a quarter of loyal customers identifying this as a strength. With the market
becoming more price focused, Sainsbury needs to address this crucial area if loyalty is
not to slip still further. The drop into third place behind Asda for share of main users
is symptomatic of the need for a much more focused customer proposition. The research
highlights Sainsbury’s vulnerability with a worryingly high level of dissatisfaction
from core customers.

Safeway has the weakest set of results
among the main supermarket multiples. Its level of loyalty is the lowest in the survey
– with over 40% of users preferring to use an alternative store. Whilst it has gained
ground in share of main users since last year, the research shows the company to be highly
vulnerable to competitive attrition. The main area of weakness is on price. Many customers
perceive it as being more expensive than most other retailers with no obvious reasons to
justify such a premium. More than one in six dissatisfied customers mentioned price as a
reason for their discontent. In spite of such a gloomy picture Safeway does perform
notably well in Scotland, a position it must now seek to emulate across the rest of the

Individual Retailer Ratings

The table overleaf shows the shops which
have the highest customer satisfaction ratings amongst their main users across several
factors. The overall importance of each factor in the entire survey is also mentioned. For
example, convenience is the most important factor overall in determining main store
selection for all retailers.

Factor Overall position of
factor in survey
Top store
Convenience 1 Safeway
Price 2 Lidl
Range 3 Morrison
Quality 4 Marks and Spencer
Service 5 Waitrose
Layout 6 Waitrose
Ambience 7 Waitrose
Facilities 8 Sainsbury

That neither Tesco nor Asda are top in any
of the factors is important. It proves that in order to be the most successful in food and
grocery retailing it is not sufficient to be top in a just few areas. Customers don’t
necessarily want to use a retailer that delivers on convenience but charges high prices
and has a limited range. Indeed, if that were the case small neighbourhood stores would
not have declined as they have done over recent years. The retailers who will engender the
greatest loyalty, convert the most number of visitors to main users and attain the
greatest share of main users are the ones which continuously meet the
multiple-expectations of today’s ever more demanding consumer.