Nestlé has warned that UK retailing could go the way of the cut-price German market. Certainly the UK supermarket scene is in a state of flux, with suitors for Safeway jockeying for position and rumors of UK bids for a chunk of troubled Dutch retailer Ahold in the wind. It’s all good news for consumers, but manufacturers will have to work harder than ever.


Nestlé’s UK CEO, Alastair Sykes commented that, “The only concern I have is that the UK market becomes so preoccupied with price – and loses touch with the value equation to the consumer – that we end like Germany.” Germany’s notoriously price-conscious shoppers ensure that discount chains hold a vast market share. Consequently, the retail market is one of the slowest growing in Europe in value terms.


But although UK grocery retailers may indeed become more price-competitive, the importance of consumer trends as the driving force in the market must be remembered.


German discounters Aldi and Lidl have already had a crack at the UK grocery market – with very limited success. Many UK consumers are clearly willing to pay for a value shopping proposition that meets other needs such as convenience, health and pleasure.


For example, consumers responded well when supermarkets introduced new ranges of higher quality, specialty and more exotic items, such as those promoted by Sainsbury spokesperson and celebrity chef Jamie Oliver. Meanwhile Tesco has built its Finest own label range into a £600m (US$960m) brand.

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Consolidating retailers gain massively from increased economies of scale. Manufacturers must respond in part by increasing their bargaining power and fostering closer, more integrated relationships with retailers. But they must also focus on consumers, whose changing lifestyles are opening new opportunities in the market.


The positive news for consumers is that there is a good chance the price of certain goods will drop in the near future. In addition, manufacturers will place consumer needs and trends under ever greater scrutiny, targeting new groups of consumers and supplying innovative products that fit their busy lifestyles. Good news for consumers, but producers will have to work harder than ever.


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