I attended a great presentation from Mark Price, Managing Director of Waitrose Supermarkets and was fortunate to have a quick conversation with him afterwards. The UK supermarket business is fiercely competitive and recent statistics by TNS show Waitrose has a 4% market share compared to their main rivals Tesco (31.5%), Asda (16.6%), Sainsburys (16.2%) and Morrisons (11.2%). In this competitive industry structure, how does Waitrose grow market share against such strong competition?
Waitrose have created a strategy focused on two specific market segments of affluent consumers
• Baby boomers looking to trade-up to better quality
• Pre-children Gen-Xs that want quality food and drink to match their lifestyle
Then utilizing a differentiated business model, focused on quality Products, Service and Store Environment, they have created a premium brand and differentiated customer experience. This makes it difficult for price-led competitors such as Tesco or Asda to replicate the Waitrose strategy.
Products: Waitrose maintains product quality by investing in the supply chain since they made a strategic decision to invest in organic farming (production) and take a long-term approach with supplier relationships. By paying dairy farmers above-market prices for milk they locked in exclusive relationships. These farmers could then invest in better technology and upgrade equipment, while other farmers struggled to reduce costs and lowered quality. Subsequently, Waitrose then repeated for pig farmers and organic growers.
Service: Waitrose isn’t owned by shareholders, but all employees are partners so profits that usually go to shareholders are paid in bonuses to employees. All employees receive a 20% annual bonus regardless of seniority; the company is open with information like sales data and store performance, publishing this every week; managers are empowered to make decisions to optimize sales and service in their store; while employee committees are elected to consult with the board on strategic decisions. By placing employees first in the value chain, Waitrose has generate higher levels of employee satisfaction, created better customer engagement and increased service levels, resulting in superior levels of customer satisfaction with profitability.
Store Environment: Waitrose creates a unique customer experience through cleaner stores, wider isles, shelves setup to promote the products and not sales posters or promotions, and established store locations are convenient to the target market with easy car parking.
I asked Mark “how is Waitrose innovating to beat the competition?”
“Waitrose is investing over £10 million in product development each year. We do not outsource our product development to suppliers like other supermarkets rather we employ top master chefs to create new Waitrose-branded product lines. Because of our business model, our produce buyers are more tenured and experienced so they understand the product categories better. This has allowed us to shift from organic to new segments, such as locally grown fresh produce, which grew 170% last year, faster than our competitors. We’ve also invested in online supermarket Ocado acquiring a 25% stake in the company, that’s helping Waitrose expand coverage into new geographic regions and gain a 16% share in online food retailing in the UK.”
Like Waitrose, a challenger brand aiming to steal market share from strong competitors, can start by developing a strategy focused on niche customer segment, then use a differentiated business model to win.