Brexit. Recession. Food Retail?

So Brexit, who expected that? I think the closeness literally could see it go either way but the margin of victory was surprising, as were some of the areas that ended up voting leave. 

Notable mention goes to Cornwall who voted leave, but wanted to secure their EU subsidy via the UK government in the new world, nice try guys. Always harder to stick with what you know, but the grass isn't always greener necessarily.

The markets were in shock and the early trading was grim, M&S off 25% in the early trading given their European exposure but shares and the FTSE rallied, but I think people were genuinely surprised at the reaction. It's major news and the government haven't always got it right, but done a lot of work for the economy, business and the wider consumer confidence - battered post recession and the crash of 2008 and shockwaves after.

A 'brexit' and the full effects will remain to be seen as we plough on, but getting the bad news out there early - result, then PM resigning 15 minutes into trading was a good move to then hopefully stabilise matters. 

There is talk of a recession and perhaps that's a bit premature, with economists agreeing on uncertainty but disagreeing on the level of impact that leaving and the various negotiations and what not. No one really knows. 

But what if we have a recession? Or confidence takes a hit? Have the food retailers learnt lessons from the discounter growth and adjusted their business models accordingly? Are they prepared, and able to campaign on value? 

Well, they'll be better prepared than they were the last time. When Aldi / Lidl rose from nowhere in 2011, I genuinely don't believe many execs had even visited a discounter in the UK, they were that negligible. 

Ironically, given the CEO change and the turmoil in Leeds - Asda were the first ones to react to the discount threat with Price Lock coming in on key staples - locking the price down and taking away promotions. However whilst this strategy carried on, it didn't then transfer to other categories and was seemingly phased out. 

They were also running long term, great value multibuys 4 for ￡3 on Biscuits and other lines, providing near guaranteed value for the customers. 

That didn't lend itself to a wider, lower price campaign and instead saw promotions win through alongside lower prices. 

Asda are clear low price winners, Grocer 33 for 17 years now(?) But their model is one that relies on promotions, the discounters have done the spade work in terms of conditioning customers towards EDLP (everyday low pricing). Within Asda, you can often just spend ￡80 if you're not a brand loyal, however within Aldi / Lidl - you can spend ￡80 and buy the same things each week.  

But with the rise of discounters, Morrisons went with I'M cheaper which was a package of price cuts that was slow backed out from, Tesco did Price Down, which again was about 100 lines (discounters range 1500/2000 let's not forget) and Sainsbury's actually did quite well out of the downturn - so didn't find themselves needing to invest into a price proposition necessarily. 

As consumer confidence grew, as did the discounters - they've not just become a house to the poor, they've progressed their offer with premium and nice store environments (Lidl particularly) to continue to attract shoppers and also take advantage if they have an extra ￡5 in their pocket to spend. 

The reaction from the major retailers has been overdue, but it has finally come along. Morrisons under David Potts have been busy overhauling nearly every aspect of the business from store operations to pricing, with their Price Crunch 12 week cuts alongside the 4 weekly cycle of deals.

This has the benefit of lowering the basket overall, alongside the continued EDLP focus on the key lines - staples so they're price competitive in the market alongside their core fresh offer too.

Tesco have been the dramatic mover with two quarters of growth (it looked as though they'd struggle for 2 days of sales growth at one time), they have arguably out EDLP'd Asda with their focus on everyday low prices and a move from multibuy deals towards a single price point (￡1 / ￡2 etc).

Bringing stability to prices for customers is crucial, Sainsbury's have abandoned all multibuys in store in favour of lower prices. There is a raft of cuts in store across all categories at the moment, lines like Porridge pots (typically on a 5 for ￡4 - 5 days of the week etc). are now flattened to a lower, single price. 

Helping customers to budget effectively with lower prices alongside bringing some stability to the shopping bill.

Against a backdrop of deflation, there are further questions to be answered over the EU and wider food imports / exports - but that is for another day.

The customer behaviour and any shifts will be watched for intently, the major retailers appear better equipped to cope this time around.