BA food deal with M&S confirmed

The previous rumours have been confirmed, with endorsement and rationale provided by the BA CEO.

Alas, it isn’t going to be an offer of Chicken Kievs and warm food returning to the skies in shorter haul economy.  (I say shorter, as the deal applies to anything under 5 hours.)  BA will now sell a limited range of M&S sandwiches and snacks.  Replacing the small free sandwich and snacks that are currently offered.

The decision  is being presented as giving customers choice and improved premium options to eat in the air.

The reality is that BA’s current short-haul food and drink offering is poor: usually a supremely unimpressive and unsatisfyingly small cheese sandwich, atrociously presented in a sealed plastic wrapper.  Or an alternative of the smallest bag of crisps physically possible to produce while being able to retain the plural in the word “crisps”.  The value is very limited.

There are many bemoaning this as extreme cost cutting and an erosion of a key differentiator for flying BA vs low-cost.  I think that is to misunderstand the issue.  I don’t imagine there is significant cost saving, or that BA expects this to be a major new revenue stream.

In my view, BA has taken the position that consumers derive little value from their current food offering.  They can’t afford to significantly improve the in-house quality given the highly competitive short-haul flights market, and the reluctance of all passengers to blanket pay for this.  However for a similar logistical burden and cost, they can provide a range of third party products that would constitute a significant improvement for those willing to pay, without those not willing to pay bearing the cost.

Seems a logical choice on the food front.

Of course many people will likely notice the beverage side of things!  No more complimentary wine on your 8:00am flight!  I’m sure they will keep water complimentary though!

Online groceries and the voucher game

In the bricks and mortar supermarket market, convenience and location play a big part in customer acquisition and retention.  The prospect of £2 off my weekly shop is unlikely to make me go out of my way to a different chain.

However for online shopping with home delivery, the cost to consumers of switching low.  So how best to entice new shoppers to try you out?

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Increasingly the answer appears to be vouchers, coupons and offers.  For example, Ocado, long time holder of the Best Online Supermarket award, has been aggressively pushing first time customer offers and vouchers for quite some time.  They have a regular offer which accumulates to a £100 discount over 5 consecutive orders.  Tescos, Sainbursy, Morrisons and Asda, longtime producers of “traditional” coupons (you know, the ones you actually had to cut out) have all increased the availability and ingenuity of their digital voucher offerings.

Close to 50% of UK consumers now use online grocery services on a regular basis, with around 10% relying on delivery for their entire shop.  Busy lives means that convenience is the main driver behind this trend.  Many don’t have time to make the trip during the week, and really don’t want to vaporise 2 hours of every weekend making the supermarket pilgrimage.  So in this environment, incentivising customers to try your service and build share is a far more realistic proposition than poaching large numbers of bricks and mortar “physical customers”.

In a coming series of articles, we’ll look at the digital marketing strategy different players are using, and how vouchers and incentives are being deployed to acquire new customers.

 

Supermarkets: price wars or cartels?

Sacrificing profits in the name of maintain customers and share.  Is it that simple?

Asda announced earlier this year that it would prioritise volume over profits, causing a subsequent drop in share prices for all of the major supermarket chains over fears of a summer price war.  So did this actually transpire?  And more importantly, do you need across the board price reductions to capture customers, or just eye catching offers on small number of products?

Looking a stock prices of major UK supermarkets, all had a large dip on 6 July following the Asda price war rumours.  It’s the second syncronised dip in the chart shown below (the first is Brexit!).  However all the valuations subsequently recovered, with Morrison’s doing the best of the bunch over the last 3 month.  So it would seem Asda’s pursuit of share didn’t have particularly long term valuation consequences for the industry?

supermarkets

A lot of price-warring is about capturing the public imagination, and getting shoppers to feel subjectively that they are getting a good deal.  All of the UK supermarkets talk endlessly about price.  However most people don’t take the time to scientifically analyse if they are getting a genuine “bargain” across their entire basket of products, so they probably compare on a small number of commodity benchmarks (milk, digestives, etc).  So some strong headlines, and some eye catching offers, can be a good way to give customers the emotional edge.  Perhaps this was Asda’s aim in their announcement?  Or is that assuming far too many of their customers would read or care about headlines in the financial pages?

Over the last decade there has been increased fragmentation of supermarket share of wallet.  The Big 4 (Tesco, Sainsburys, Asda, Morrisons) have been under increasing pressure from discounters (Aldi, Lidl, etc), and it has become a lot more common place for people to multi-shop, for example with weekly trips to a Big 4 and fortnightly trips to a discounter for a bulk items.  Give that discounters stock on average about half to a third of the variety of products, they can offer significantly lower prices on the products they do carry due to higher inventory efficiency and a smaller supplier base to manage.  It’s the rise of Walmart all over again! (Wait, who owns Asda?)  Willingness to multi-shop undermines the loss leader strategy to some extent.

It’s a commodity market, but it’s not perfectly efficient.  Despite the marketing, 3 of the Big 4 are pretty much a coin toss apart on average basket price, with Asda staking out the the lower price / quality end.  Between the 3, most customers can’t tell the difference and the average price basket difference isn’t really exciting enough to swap custom.  So most people go to the most convenient or largest option nearby.  The differentiation from the discounters is the range of choice that enhances their shopping experience while minimising the supermarket’s waste in extra inventory carry costs.  And of course Waitrose and Ocado rule the quality and upper-income end of the spectrum.

So market share ultimately comes down to price / quality perception, location convenience, size, reliability and any value-added extras that reinforce the overall package (e.g. on-site dry cleaning, saving another inconvenient trip).

All of the Big 4’s strategies seem to involve “investing” to deliver “sharper” and “keener” prices.  So actually there is no price war, just everyone trying to run as efficiently as possible while introducing added value lines, internet options and trying to get the best locations.

So no need to panic then.