Crisis inspires top retailers to compete even more

Despite the fact that stock prices go, supermarkets especially in the US are still feeling the recession pain. But for some of them, the crisis has been a unique opportunity to woo customers into a relationship that they hope will become permanent.

Top retailer Wal-Mart fell 21 percent from a year ago, second Kroger - 50 percent, as much as fourth-largest Supervalu, while fifth-largest Safeway - 28 percent from a year ago. Meanwhile, in the UK, top retailers have fared slightly better. Number one Tesco is down 5 percent, while its arch-rival Sainsbury's, the third-largest, fell just 2 percent year-on-year. Fourth-largest Morrisons fell 9 percent.

According to Natalie Berg, Grocery Research Manager at Planetretail, heightened competition has made strong value proposition a must for supermarkets to stay viable. She said that value — or at least the perception of value — remains the most important strategy for supermarkets. Of course, changing the perception that your prices aren't as low as somewhere else doesn’t happen overnight, Berg added. This has hurt premium retailers such as Whole Foods and Marks & Spencer, as well as middle-range retailers such as Supervalu in the US.

Nick Bubb, retail analyst at Pali International told CNBC, says advertising has become increasingly important, despite the economic crisis. A supermarket with good public relations and a strong marketing team will usually find more success when consumers are being more frugal. Sainsbury’s in particular has seen great success with its PR campaign. It has positioned itself as the retailer offering quality food at fair prices, gaining customers from premium retailers such as M&S and Waitrose.

Many consumers are trading down to cheaper stores, and are becoming more confident due to the amount of information available on the Internet. Another casualty in the recession has been name brands. Brands count for about 75 percent of sales in the US, while only 50 percent in the UK. They increasingly have to compete with supermarkets’ private labels for shelf space, as the private labels typically offer the same quality at a 25 percent lower price than the name brand.

In addition, some retailers are already moving to expand. Sainsbury’s recently posted a 7.8 percent increase in sales for the first quarter of 2009, and announced plans to expand its services throughout the UK.