26 Oct Why are large supermarkets gaining market share to small supermarkets?

This is no speculation. Large supermarkets are gaining market share over small retailers at an accelerating rate. The big fish eats the small fish. But it has not always been the case. During the COVID-19 pandemic, small supermarkets reversed this trend because of their proximity and reduced crowds. They also offered greater flexibility, adapted better to customer needs and had fewer product shortages. Perhaps one of the most significant reasons why small grocers gained market share over large supermarkets during the pandemic was the public’s sense of duty to support the local community and help sustain its people and businesses.

However, the situation has changed. ANGED (National Association of Large Distribution Companies) annual report reveals that small food retailers have already lost the share gained in the pandemic, while that of large supermarkets has soared. And its growth is predicted to persist. Industry professionals agree that this trend already seems unstoppable, as reflected in the survey conducted on our LinkedIn company page. Almost 90% believe the trend will continue to grow.

But why? The reasons are manifold, but all show the substantial competitive advantages of large supermarkets over small grocers. These advantages are so objective that they can hardly be reversed since they relate to supermarket business models and to new consumer habits.

These are the reasons why large supermarkets are gaining market share over small retailers:

Financial resources

Large supermarkets possess greater financial capacity to invest in attracting more customers and maintaining a constant presence in the market. Your business plans are more solid.

Their dedicated budget lines are used to develop advertising and marketing campaigns as well as numerous other promotional initiatives ranging from discounts and loyalty programmes to the implementation of advanced effective marketing strategies.

And that’s not all. The financial resources available to large supermarkets enable them to secure market share as they gain stronger bargaining leverage over manufacturers and suppliers, with whom they can reach more favourable terms in supply and pricing. This is due to economies of scale. Supermarkets can purchase products on a larger scale and negotiate better prices with suppliers due to the high volume of their purchases, which ultimately results in significant discounts from suppliers. This translates into lower prices for customers and a higher profit margin for supermarkets, which attracts shoppers. It’s a loop phenomenon.

This economy of scale is also related to their geographical reach. Large supermarkets often have multiple locations in a region or even nationally, which allows them to reach more customers. This can hinder competition for smaller supermarkets and retailers, which often have a more limited local presence. In other words, what was an opportunity during the pandemic is now a clear-cut disadvantage.

Besides, large supermarkets can implement more advanced efficient cost management systems to control and diminish costs, meaning they can offer lower prices while maintaining a good profit margin.

All these economies have an effect on their ability to adapt to new consumer habits, such as extended opening hours. Nowadays, customers’ working hours are very diverse and extended opening hours mean more customers as they can shop at times that are most convenient for them.

Product pricing

Given that large supermarkets have greater financial resources, they have a higher sales volume and can negotiate better prices with suppliers, which results in lower product prices. This is not only in relation to small retailers, but also to other supermarket chains due to competitive pressure. In fact, competition between large supermarkets can lead to price cuts and more aggressive offers, which in practice prevents small supermarkets from competing on price.

Another important reason why large supermarkets can offer better prices is the creation of own brands. Many of their regular suppliers manufacture the products they supply under private label so they can be marketed on the shelves under the supermarket brand. And large supermarkets know very well how to choose private label manufacturers. Furthermore, this brand is backed by the supermarket chain’s own brand, so it is already recognised nationally or on an international level, bolsters customer trust, appeals to more shoppers and lowers costs by facilitating price adjustments.

Technological resources

Although it is often said that technology is accessible to everyone, the truth is that its accessibility is quite inconsistent. Smaller shops are slowly moving towards digitalisation, while large supermarkets already have the most advanced technology in place, such as inventory management systems, automated cash registers and efficient logistics systems. These resources guarantee a more streamlined operation and reduced costs, which again translate into capacity to offer lower prices, but also to maintain a constant flow of products and provide a better customer experience.

The variety on offer

Convenience, quality, variety, price and service. These are the five leading customer priorities. And large supermarkets can meet them. Since they offer a wide range of products in one place, this saves customers’ time, which is one of the scarcest commodities nowadays. In addition, large supermarkets are geared towards convenient shopping, offering customers ample parking spaces, extended opening hours and a variety of services since these supermarkets sell everything from food to clothing and electronics.

As for the variety of products on offer in large supermarkets, organic products have gained substantial importance. This is especially true in the food industry as consumption is on the rise, as in the case of organic pulses. Shoppers have become more conscious and are seeking products that are not only aligned with their dietary preferences but also with their ethical requirements.

Sustainability

As with the growing demand for organic food, consumers are demanding that their places of purchase and the companies behind them are sustainable. They expect the products they buy to meet their quality and taste expectations, as well as their requirements in terms of social commitment. They prefer to shop in a place that is committed to the environment, gender equality, social inclusion or animal welfare, for example. And they also want the retailer to require this commitment from its suppliers. This is why large supermarkets are investing in sustainable practices, and they adhere to international initiatives such as becoming partners in the UN Global Compact or developing equality plans. A commitment that is often unrealistic for small retailers.

What’s your opinion on the growth of the different types of supermarkets? Do you agree with the reasons why large supermarkets have a bigger market share? Are there any other factors to take into account?