This week’s forecast – Destruction on the high street

4 May 2018 17:36

The last few weeks have seen many changes in the retail sector, the latest this week is the proposed merger between Sainsbury’s and Asda. The consolidation aims to protect Sainsbury’s from the low-cost challengers by giving more price flexibility, with higher margins or lower prices, effectively squeezing the suppliers. This is part of a broader picture of larger purchasing groups. 

So what do naïve forecasts from the graph below tell us about likely developments in the UK grocery sector: if trends were to continue Asda and Sainsbury’s together will not hold the line, with increases predicted for the low-cost retailers (Aldi and Lidl) share to rise from the current 11.9% to around 15% by 2020, primarily at the expense of Tesco. But naïve forecasting only poses the challenge: can better models give more insight? In fact, in the last few quarters, Tesco have been halting the decline they have seen since their peak in 2005. The naïve forecast needs to be updated with a ‘nowcast’ that captures their most recent success. So a naïve forecast is always valuable: it poses the problem; what can we do to change this unattractive future? And Tesco, Sainsbury’s and Asda have shown their strategic responses. 

Will the shifts in consumer purchasing habits continue: from out-of-town megastores to shopping more often locally, from bricks and mortar to online and towards the low-cost retailers? Models get you so far, but rapid changes in shopping habits are difficult if not impossible to include – the forecasts are going to depend on a mixture of model and judgment. 

“This week’s forecast” is a blog series, which covers commentaries, by members of the Centre for Marketing Analytics and Forecasting, about topical and controversial forecasts in the news.

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