Are we heading towards a supermarket bubble?

As more supermarkets continue to open, the retail landscape is rapidly extending itself. With even more appearing on the horizon, this raises the question on how many more can the market sustain.

Are we heading towards a supermarket bubble? Are all these planned openings going to translate to retail expansion driven by demand and consumer-centric innovation or simply lead to store sales cannibalisation?

It’s all fine to have a thriving competitive environment but market indicators are beginning to lean towards unsustainable competition chaos with all its consequences.

The supermarket scene needs a shake-up if we want to avoid a more far-reaching market shakeout. As openings continue to pile up, indicatively reaching unprecedented numbers, the question on everyone’s mind should not just be on who is opening next but who is now likely to close.

The retail market needs a breather, otherwise it’s only a matter of time before the consequences of oversupply, and possibly also overtrading, kick in.

As understandable as it is for retailers to visualise their potential strategic growth ambitions based on conceptual considerations, ultimately, are such openings backed by proper assessments along with well-articulated business plans or retaliatory moves intended to outpace competition resulting in surplus retail space?

This seemingly unending drive towards increased market presence is growingly resembling a rat race as opposed to structured growth.

Furthermore, in seeking to square the circle with the risk of overreaching and wasting resources needed to focus on their core competences, some retailers believe they are best placed to singlehandedly take on the full supply chain.

In doing so, they often overlook the potential synergies and underestimate the value of collaboration with distributors, which can translate to cost savings, improved efficiency and better customer service. 

Equally, distributors, whether producers or importers, need to challenge their ways of working, adapt and respond to today’s market realities, countering the growing competitive pressures.

While many distributors remain vulnerably exposed within an excessively fragmented and congested market, there lies an opportunity in driving more value through consolidation.

Apart from seeking to outpace competitors in terms of size, speed, price, logistics or service, this course of action can also allow distributors to arrive at innovative and smarter ways to differentiate and not simply replicate mainstream thinking and practices.

This seemingly unending drive towards increased market presence is growingly resembling a rat race as opposed to structured growth- Norman Aquilina

But, in seeking to grow rather than getting overrun, are distributors ready to seriously challenge their business models, breaking away from their traditional boundaries?

In avoiding that distributors continue to stand on shaky ground, it is high time for strategic repositioning, ranging from structural to operational transformation, forging partnerships, optimising supply chains, investing in digitalisation and more.

While retailers seek to capture more of the value chain, notably through direct and parallel importation along with private label, distributors need to come to terms with these realities.

They need to mitigate the expected margin compression by securing scalable and more efficient distribution operations, thereby protecting their competitive positioning.

Just as retailers need a reality check in terms of their business practices and outlook, so do distributors need to be prepared to take bold decisions, challenging any deep-rooted outdated practices.

The whole supply cycle, from production to importation to retail shelf, up to consumer offering, needs a realignment with the aim of reaching a revalued supply chain. One that should, ultimately, translate to better services, quality products and fair prices for consumers, creating a win-win for all stakeholders.

In understanding the prevailing market dynamics, it is only too evident that the status quo is not an option, indeed both retailers and distributors must effectively address their respective challenges. 

All this necessitates a recalibrated game plan, one in which retailers need to adopt a more sustainably balanced approach when considering extending their retail footprint, while distributors need to ensure they are well-placed and prepared to competitively disrupt or depart.

It is high time to reposition retail and renew distribution.

Norman Aquilina is the group chief executive of Simonds Farsons Cisk plc and chairperson of Quinco Holdings plc.