Tesco says ‘Today is the New Normal’

Consumer mkts Sept11.pngThe world’s leading retailers have been extremely reliable leading indicators for the chemical industry, since the Great Recession began.

They were the first, back in July 2007, to highlight the major changes underway in consumer markets. Tesco, the world’s 3rd largest retailer, warned then that they were changing their focus away from more affluent shoppers and green issues:

“Coming down the road is a tougher time, and that is why we are doing this now.”

Now Tesco’s UK CEO Richard Brasher, who gave that warning, has gone one step further. Launching a £500m ($775m) discount campaign, he explained:

“Today is the New Normal. Customers are challenged. They have got to make ends meet”.

Tesco is seeing the same issues as Wal-Mart and Carrefour (world No1 and 2), as well as thousands of smaller companies. The Boomer-led SuperCycle of demand is disappearing, as the chart above shows:

• From the 1980s onwards, consumer companies developed the concept of ‘mass customisation’, which aimed to provide higher perceived value
• They could afford to do this by outsourcing manufacturing to lower-cost factories in Eastern Europe and Asia

Consumers loved this benefit. But now, the market is polarising again.

Luxury brands are still doing well, and so are the bargain ‘Dollar Stores’ which keep prices low. But the middle ground is disappearing.

Tesco and the other major retailers are having to make a choice about how they position themselves in the New Normal. Clearly, they have to go down-market, and compete on price, in order to survive as volume players.

In turn, of course, they will force the same choice on their suppliers.

Companies will therefore find it increasingly difficult to ignore the New Normal, if they wish to maintain their volumes and pricing power.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. The aim of this blog is to share ideas about the influences that may shape the chemical industry over the next 12 – 18 months. It will try to look behind today’s headlines, to understand what may happen next in important issues such oil prices, economic growth and the environment. We may also have some fun, investigating a few of the more offbeat events that take place from time to time. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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