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Requirements for successful disruption

By August 1, 2018 No Comments

The UK’s largest supermarket chain, Tesco, has just announced plans to establish a 2nd (discount) brand called “Jack’s”.

On the surface, UK supermarket retail may not seem comparable to the Telecom / ICT space but scratch a little more and there are some similarities:

  • On the face of it, the market is controlled by a small number of “dominant” players e.g. the top 5 supermarkets in the UK control over 75% of market share.
  • Margin and market share are under constant pressure especially from faster-growing, low-cost German retailers: Lidl and Aldi – both out-pacing the larger players in terms of growth and both doing well in terms of alternative engagement models.
  • Limited brand loyalty. It’s worth mentioning that UK household spend in supermarkets is over 3-times the amount spent on communications so small wonder that people shop around.
  • Importance of the need to flex and scale, cost effectively. No surprise in hindsight that an ill-prepared attempt by Danish supermarket: Netto to partner with the 2nd UK chain Sainsburys rapidly fell flat in 2016. They didn’t have national scale. The partners were from two sides of the value spectrum and were early victims to uncertain commitment.
  • All of the above point to an almost inevitable cycle of consolidation, as has been the case with a recent announcement of number 2 in the market (Sainsburys) joining forces with number 3 (Asda).

There are further similarities with the telco market that may be less obvious:

  • Efforts to digitise the business (such as Tesco online and online-only Ocado) have had somewhat mixed results.
  • Disruption from the side by alternatives such as Amazon seems inevitable. (Amazon is already testing supermarket automation and has invested heavily in the Whole Foods retail chain in the USA).

The experience of Netto, Sainsburys, Lidl, Aldi and soon Tesco point to an insatiable appetite on the part of consumers to seek distinguishably better value and experience. They also imply a need for flexibility, scalability and the right partnerships. Sound familiar?

2nd brands may seem like an obvious means by which to leverage the best that a parent company has to offer while attempting to hit back at low-cost competitors. But if it is essentially the same business dressed up as something new, consumers will look past it very rapidly. Without truly changing the game and providing a genuinely disruptive alternative it may even damage the core business. Sainsburys found this to its cost. Time will tell if Tesco manages true disruption with a 2nd brand where others have failed. Operators may be watching closely.