Forget the Aldi pricing strategy, the real supermarket war is over customer loyalty

Given Tesco’s recent woes and Aldi’s news that it has posted a pre-tax profit rise of 65.2% to £260.9m for the year 2013, you might be forgiven for thinking that going low-cost is the only strategy for success among the major supermarket chains.

However, in response to Aldi’s announcement, the Institute of Customer Service (ICS) has warned the food sector that although low-cost stores are currently in vogue, customer loyalty should still remain a key driver among those retailers considering switching to a price-slashing philosophy.

Citing the recent UK Customer Satisfaction Index (UKCSI), Jo Causon, chief executive for the ICS stated that the success of chains such as Aldi and Lidl was driving a belief throughout the rest of the industry that going low-cost was the only opportunity to compete:

“Within the retail food sector, customer service clearly has a strong influence on people’s choice of retailer.

“Organisations in this sector have been quick to realise the importance of maintaining the highest levels of customer service to respond to increased competition in the sector, as well as the ease with which customers can vote with their feet. The sector is well placed to provide examples of best practise to other industries."

July’s UKCSI found that retail food was rated the second highest for satisfaction levels across 13 sectors, with high-end brands Marks & Spencer and Waitrose rating best within the sector.

The study also found a strong correlation between customer satisfaction and business success - food retailers with UKCSI scores above the sector average delivered 8% average year on year sales growth in the 12 weeks surveyed compared with 5% for competitors with a UKCSI score below the average.

Just 6% of brands in the sector failed to meet customer expectations, further emphasising how important maintaining high levels of customer service is for the industry:

“As a whole the retail food sector is continuing to perform strongly, with many organisations that perform best in UKCSI reaping the benefits through growth in sales and market share. It is clear that the competitive environment we’re seeing in retail food will not be defined by price alone. Instead we expect to see market share captured by the firms that balance cost of goods with quality of service.”