After Colruyt Group‘s disappointing half-year results, observers are concerned for Belgium’s biggest supermarket chain. It takes a magnifying glass to look for positive signals in the figures. How can the retailer get back on track?
Market share stops drop
Expectations were not very high to begin with, but still Colruyt Group went under the bar. “The worst performance ever”, Barclays analysts concluded after the profit decreased by a third. Never before has the company published a gloomier half-year report, never before have there been so few bright spots that offer any prospect of improvement. The retailer itself admits as much: the net result this financial year will show a significant to strong decrease compared to last financial year, a press release says.
However, despite a very difficult basis for comparison, sales did not continue to fall: they only stagnated. With some good will, you could call that an encouraging sign. Moreover, the retailer’s supermarket chains – Colruyt Lowest Prices, OKay and Spar – are no longer losing market share. That is at least some reassurance after that significant and worrying loss of market share in a difficult Covid year.
Difficult position
There are some comments to be made about this: Nielsen has adjusted the way in which the market share is calculated – perhaps quite rightly in view of the changing market situation, but how watertight is the comparability? The Colruyt stores still lost 4.9 % in sales. The state of grace of the proximity stores, which experienced high days during the lockdowns, seems to be over. That is good news for Colruyt Lowest Prices, less so for Spar.
Much more worrying, is the pressure on profit margins, which is largely due to the increasing competition on price and promotions. With its lowest price guarantee, Colruyt finds itself in a difficult position: it has to react to every initiative of every rival, and that costs a lot of money. The other food retailers realise this all too well, and are ready to strike where it hurts most.
Price war or perception war
Ahold Delhaize continues to push: with smart stunt promotions and personalised offers, the combination of Albert Heijn and Delhaize is making life very difficult for the market leader. Moreover, the group is making great progress online, while Colruyt continues to procrastinate with home deliveries. Discounters Aldi and Lidl also keep the pressure on, with a changing offer of sharply priced A-brands that Colruyt cannot ignore. And while Dutch newcomer Jumbo is still small, it nevertheless forces the market leader to react to its sharp discounts.
This battle is taking place in a context of expected high inflation. If at the beginning of next year the strong cost increases really translate into noticeably higher prices for food, we can expect a price war, in which Colruyt’s competitors have the big advantage of being able to limit themselves to a war of perception, while Colruyt owes it to itself and to its customers to be the cheapest for every product at every moment.
The bar has been raised
All this is also bad news for the manufacturers who are currently negotiating with the market leader. After the visible clashes with Ferrero and Mondelez – and the less visible clashes with other multinationals – they will not be able to count on a lenient attitude from the buyers. Colruyt will continue to do everything in its power to safeguard the consumer’s purchasing power – and its own price positioning. COO Marc Hofman did not leave the least doubt about this recently: he pointed out, among other things, “large and inexplicable differences between producers of similar products”. A stern warning.
The market leader must also be prepared to look into its own heart: in several areas, the number one has allowed itself to be scorned by colleagues who are proving faster and more agile. The weak figures are only a consequence of the fact that Colruyt is no longer the undisputed winner in its market. Today, the bar is set higher in terms of shopping experience, convenience and online offerings. Recent initiatives – an autonomous store, pick-up points for fresh meals, an online ordering platform for Spar – show that the headquarters are aware of this, but for the time being it is still too little, too late. A necessary turnaround will take time. But how much time does Colruyt Group have?
