Kwik-Save was taken over by the Somerfield Group after a series of complex mergers in March 1988. The Somerfield Group is the fifth largest food retailer in the UK. The group has approximately 1450 stores (650 Somerfield and 800 Kwik-Save), making it Britain’s largest supermarket in terms of the number of stores that it holds. However regardless of the fact that Tesco were outnumbered in terms of outlets, Tesco’s sales in1998 at £21bn were five times bigger than Somerfield’s. The Somerfield group, by their own admission, took their eye off the ball and allowed their competitive edge to decline – this was particularly damaging to Kwik-Save which had a tradition of maintaining low-prices. Tesco - the leading chain - made a profit of £1bn while Somerfield made a £13m loss. The group lost over 2% share over the course of the ‘1998 year’, mostly through its Kwik-Save stores. There are several reasons for the sharp decline in the Kwik-Save share.
firstly in 1998 a program was started with the aim of converting Kwik-Save outlets into Somerfield stores, but more importantly are the ‘like-for-like declines’ which are calculated to be at around 10%. This caused the group to increase its prices on goods and to try and sell off as much as 500 of its stores. They hoped to be left with only 850 stores in total, which would be run as a smaller, and more profitable organisation. However, only 46 of the larger Somerfield stores could be sold and the company still had 1400 stores in total. The result of this was an all time low share price for the Somerfield Group in the year 1998-1999 and serious concerns were raised about the future of the business.
Table 2: Market shares of the leading UK Supermarkets between 1996-2000
Source: Superpanel, Till Roll Share of Trade
As can be seen from Table 1, Kwik-Save has lost 2.5% of the market share between 1996-2000; this is a loss of approximately 50% loss of its original market share.
The initial rationale for Somerfield and Kwik-Save merging was that of cost-saving and that the result would be an improvement in profitability. However the loss in market share and turnover had negated this benefit.
The future??
One thing is for certain and that is Kwik-Save under the control of the Somerfield group cannot continue like this without eventual failure of the business. A new strategy has to be taken to build the business back up to being competitive and profitable.
My strategy for the company to return to a state where it is profitable would be to concentrate on the sector it had always done well in the past, that is to return to its roots – “Providing shoppers with unbeatable value from conveniently located stores”. As well as that I would remove the Somerfield private labelled goods from Kwik-Save stores and start heavily marketing and promoting Kwik-Save’s ‘No-Frills’ brand. I would recommend a new format to the store and direct the company’s focus towards concentration back on local neighbourhood retailing.
Data that I have obtained while researching Kwik-Save suggests that top-up trips still dominate in terms of all trips made.
Table 3: Different types of shopping trips undertaken
DIFFERENT TYPES OF SHOPPING TRIP
Source: Superpanel
From the table above it might seem that top-up trips are not necessarily important in terms of spending value, however this should be seen as an opportunity for Kwik-Save to open up a market base that has been neglected. These stores are great at attracting the top-up shopper who requires just a few items urgently and are not willing to travel the extra distance to shop at the larger out of town supermarkets. Kwik-Save stores are perfect for this as they are conveniently located to shoppers on foot. There seems to be a current trend towards short life convenience foods means that there will be a pull with shoppers needing to shop more frequently to re-stock these kinds of items. Therefore the store should concentrate on selling products that are suited to these kinds of top-up trips. Products such as bread and milk dominate top-up trips, with pet food and tea bags also featuring heavily. These types of good should be heavily advertised in the local press as well as having promotional discounts on these goods. However the correct balance should be taken between promotional activity to boost sales and profitability, which suffers when too much stock is given away. In addition to this clever product placement of other items in the store such as canned goods, sauces and cleaning products the customer will tend to buy these additional products on top of what they initially came to buy.
By also increasing the opening hours of the stores, possibly to even 24 hours at certain prime locations to accommodate the different lifestyles led by an increasingly number of customers would increase trade.
The larger supermarket retailers, such as Tescos and Safeway, have already taken up this opportunity. They have started opening convenience stores within petrol stations.