First Asda and now Tesco are cutting roles at bakeries and food counters, so are the days of such supermarket services numbered? Retail Week considers whether such changes will work or play into the discounters’ hands.
- At Tesco 24,000 roles have been affected by the closures of fresh food counters in the last 12 months
- Ged Futter, director at Groceries Supply Code of Practice, believes Tesco and Asda are “missing a trick” by scaling them back
- The moves represent “a real convergence” with the discounters, says analyst Bryan Roberts
- Shore Capital’s Clive Black says the changes reflect new patterns of consumption
On Tuesday, Tesco revealed it would axe around 1,800 bakery roles across its stores. The top grocer said it would change the way it produces baked goods in 259 of its large supermarkets – some items will be part-baked and others pre-prepared and finished in-store.
In early January, big-four competitor Asda said it would close all its meat and fish counters in order to pivot more to food-for-now lines such as pizzas, pies, peri-peri chicken and katsu curries.
Both grocers maintain that they are merely moving with the times. Tesco explained that it intended to adapt space and range “to cater to changing customer demand” as shoppers chomp on more bagels and wraps, rather than traditional loaves.
There is also, though, an element of cost-saving. Tesco, as it enters the final phase of the turnaround Dave Lewis has overseen, has promised to save £1.5bn in costs by the end of this year.
Asda, too, has been cutting jobs in a bid to operate more efficiently, as have Sainsbury’s and Morrisons. That is understandable. The UK grocery market is ferociously competitive, margins are razor-thin and the impact of discounters Aldi and Lidl is still being felt.
But, as they battle with the discounters, are the big-four supermarkets losing out on important differentiators such as serviced counters that might haunt them in the long run?
Points of difference
Retail Week analysis shows that Tesco has made the most changes in relation to counters and bakeries over the past 12 months.
In January, some 24,000 roles were affected by closures of meat, fish, bakery, deli and fresh food counters at large supermarkets across its estate. This was followed by a further 4,500 backroom and store management roles at Metro stores in August 2019.
Former Asda commercial director Ged Futter, now director at Groceries Supply Code of Practice, believes Tesco and Asda are “missing a trick” when it comes to scaling back bakeries and food counters. To his mind, the big four are losing an important point of difference to the value grocers.
“It’s playing right into the hands of the likes of Aldi and Lidl. They are famous for their part-baked bread”
Ged Futter, Groceries Supply Code of Practice
For example, Lidl part-bakes goods centrally before shipping them to stores and finishing them there. Aldi, meanwhile, has gone a step further and currently operates 15 in-store bakeries, including eight in all of its smaller Local formats.
Between the two discounters, analysis shows they have created 2,500 new roles around food and deli counters since 2014.
Futter says: ”With Tesco, I don’t see much being flagged as replacing these bakeries that are being taken out, other than part-baked bread. I think it’s playing right into the hands of the likes of Aldi and Lidl in particular. They are famous for their part-baked bread.”
Independent grocery analyst Bryan Roberts also questions the decision. For one thing, he points out, Tesco itself said a few years ago that shoppers who used its counters would typically spend more than shoppers who didn’t.
He understands why Tesco and Asda have made the move from a cost point of view, but says it represents “a real convergence with the discounters, who have really raised their game in bakery, meat and fish as well”.
Roberts says that in countries such as Spain, Germany and Poland, which are “dominated” by discounters, traditional grocers have “started swimming upstream and really piling in to amazing service counters and offering a lot more of a differentiated proposition”.
Sainsbury’s has been axing jobs, but has yet to take the steps that Asda and Tesco have with bakeries and counters. Morrisons has doubled down on its serviced offer, investing heavily in its Market Street deli, fishmongers, greengrocers and bakers.
At the end of 2019, Morrisons opened a new store in Canning Town, east London, which included a coffee bar, a florist and take-away hot pizza.
Roberts believes that focus will pay dividends for Morrisons, provided it can articulate the point of difference.
“The service counter is very much in its DNA and at the core of the Market Street proposition. If anything, they should really be making much more of the fact they’ve got fully trained butchers and fishmongers combined with the accompanying level of service that goes with that.”
Both he and Futter point out that Morrisons is able to deliver the counters at scale in a way its big-four competitors cannot because of the fact it is vertically integrated.
As counters become less prominent for many of the big four’s larger supermarkets, what will replace them?
Sushi, sandwiches and sausage rolls
In November last year, Tesco unveiled a partnership with Japanese restaurant group Yo! Sushi, which has now expanded to 50 of its stores. The sushi-to-go specialist has since also partnered with Sainsbury’s.
Asda, meanwhile, has launched a concession partnership with high street bakery chain Greggs. Five shop-in-shops are to be opened as part of a pilot that begins this month.
“It’s a clear indicator that management sees the balance of lower-cost, simpler stores and lower prices as more important than simply having the halo of theatre”
Clive Black, Shore Capital
Shore Capital head of research Clive Black says Tesco and Asda’s decisions are indicative of the way the big supermarkets are thinking.
“With the bakeries, Tesco absolutely knows this is going to provide less theatre and service, and, in the main, shoppers don’t like that sort of thing. But they clearly feel that’s the balance and the price to pay.
“Equally with Asda and its counters, and replacing them with Greggs concessions. It’s a clear indicator that management sees the balance of lower-cost, simpler stores and lower prices versus Aldi and Lidl as more important than simply having the halo of theatre.”
Roberts says customers can expect to see more third parties coming into supermarkets. “It’ll serve a double-whammy effect of using up empty space, while also passing on the payroll of those staffing it to someone else”.
Futter says such tie-ups will only work if the grocers can locate them in store in a way that is convenient for the customer. In Tesco supermarkets, for example, he says, the bakery sections tend to be at the back of stores.
“For the customer, is it really a convenient food-to-go option if it’s all the way at the back of a big store? For a retailer to replace counters with food-to-go propositions, then you’ve got to make the offer so compelling to make the customer walk there.”
Ultimately, Black believes the decisions made by Tesco and Asda fit in with the changing way the consumer is shopping. “The challenge of the discounters is better understood now [by the big four], but hasn’t gone away,” he says.
“Also, more people are shopping for groceries online and in smaller, more frequent shops than the traditional big basket shop. These all change the economics of large stores.”
While the supermarket counter is not dead, it is changing with consumer habits.
Tesco and Asda may lose a point of difference with the discounters, but if customers vote on new third-party concessions with their feet and purses, the wisdom of the changes may be borne out.
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