Over the past decades, Colruyt has completed a phenomenal growth trajectory. This year, however, for the first time the retailer has to give up market share. In addition to the corona crisis, a number of fundamental trends are to the disadvantage of the Belgian market leader.
Changed purchasing behaviour
For a long time it seemed as if nothing could stop Colruyt’s rise. The loud entrance of the much larger Carrefour on the Belgian market, now more than 20 years ago, turned out to be a stimulus rather than a threat and quickly took Colruyt from third to first place. Lidl‘s sustained offensive could not harm the market leader, nor could Aldi‘s transformation. The arrival of Albert Heijn did not initially hurt Colruyt either. The combination of the lowest price guarantee with a high level of service and a sustainable policy proved irresistible to consumers.
Until now: since the first lockdown, the retailer has lost market share to its two traditional rivals, Delhaize and Carrefour, who have completely recovered, it seems. The corona virus has thoroughly turned the buying behaviour of Belgian shoppers upside down. But above all, the pandemic has reinforced some trends that have been around for a long time, and which are not in favour of the big Colruyt Lowest Prices stores. What exactly is going on?
1. Lagging behind in proximity
According to Colruyt itself, this is the main reason for the loss of market share: since the lockdown, people shop more locally. Those who work from home no longer do their shopping on the way home from work, but shop nearby. It is precisely in the neighbourhood shopping segment that competition is much stronger. At Delhaize and Carrefour, independent proximity stores account for more than half of turnover. At Colruyt, that is not even twenty percent. The retailer is investing in the expansion of the Okay chain and the Spar retailers are doing very well, but the backlog is (too) large. And the growth of proximity is a long-term trend, which was accelerated by corona but will not disappear with the virus.
2. Professional customers stay away
The fact that the retailer tested an adapted retail formula for professionals earlier this year is no coincidence: the Colruyt stores normally receive quite a few (semi-)professional customers. Think of night shops and small catering businesses, but also and sports clubs that run a canteen or organise festive evenings. That trade came to a complete standstill. The good news: when the situation normalises, these customers return. The less good news: the catering industry will probably never be what it used to be and especially many smaller entrepreneurs are in danger of going under for good.
3. A negative price perception
Colruyt is a price follower on the Belgian market: the lowest prices are always a reaction to price initiatives by competitors. When the government decided to ban promotions in March, there was nothing more for Colruyt to respond to. As a result, the higher price level in the whole sector became particularly visible at the market leader. Moreover, several price comparisons by Test-Aankoop and Daltix showed that prices remained at a higher level even long after the ban on promotions was lifted. This leaves the retailer with a particularly difficult perception problem, as the lowest prices are at the heart of Colruyt’s positioning.
4. The demography is bad news
Anyone who wants to predict trends must keep an eye on demographic trends. These evolutions are to the detriment of the Colruyt stores. There is a shift towards smaller families, with more single and double households. And there is urbanisation, which means, among other things, that people will live smaller. This is bad news for a retailer that bets on large packaging and volume discounts. Tomorrow’s consumer will not have a large larder and freezer cabinet.
5. Competitors have raised the bar
Colruyt’s years of dominance were, in a sense, a disincentive to innovation in Belgian food retail. Unintentionally, of course, but still: you don’t usually discover the latest products or the most groundbreaking store concepts first at Colruyt, a leader who is a follower in many areas. Compare that to the Netherlands, where trendsetter Albert Heijn takes the whole sector in tow. In the meantime, newcomers Albert Heijn and Jumbo on the Belgian market have woken everyone up and raised the bar. Low prices alone are no longer enough, the shopper also wants a nice, warm supermarket, a surprising assortment, sensational offers, digital solutions, superior services, and the groceries at the front door for no money. The customer no longer takes peace with a compromise: there is work to be done.
Catch-up race
There is no financial problem for the time being. Colruyt is an exemplary company that has always shown itself to be very resilient. The results proved time and again to be better than what critical analysts had predicted. There is no doubt that the group will close this current financial year with resounding figures, despite difficult circumstances. The strong value-driven company remains a very attractive employer, is a forerunner in sustainability and performs operationally excellent.
But: the clock is ticking. If the market share continues to decline, there is a risk of a tipping point in sight. Judging from the series of innovative projects that Colruyt launched in the market last year alone (home delivery with sustainable CNG delivery vans, a ghost kitchen, bicycle couriers, smartphones for all store employees, acquisition of data companies, etc.), the management realises this all too well. The accelerator has to go deeper, otherwise it will be a catch-up race for the market leader.
