Supermarkets flex their mobile muscles

Supermarkets flex their mobile muscles

Tesco is a company that has been associated with mobile for a long time; the UK’s most successful MVNO also has an impressive portfolio of phone shops, online presence and distribution capabilities. It was the last of those assets that the brand made headlines with last week, as Mobile revealed that the company was planning to ditch distributors and pursue a direct strategy.

The decision demonstrates the power that Tesco now wields within the mobile industry, and closely followed the retailer’s announcement that it would be phasing out the sale of other operators’ contracts through its Phone Shops. The big question now for the supermarket is whether it can make it with the support of fewer experienced mobile industry partners.

Tesco isn’t the only supermarket to have continued to make progress in the mobile retail segment. Sainsbury’s and ASDA are two examples of others who are also leveraging the combination of MVNO and Phone Shop across their retail portfolio. Mobile reported at the beginning of March that Sainsbury’s had decided to boost its numbers of Phone Shops after seeing sales of mobile accessories more than double in the space of a year. The brand won’t be stopping there, with plans to push into the wearables market, initially online and then through its retail arm. The stores are directly managed by Sainsbury’s staff who are specifically trained to sell phones and accessories.

ASDA was one of the first supermarkets to start rolling out in-store Phone Shops within its superstores, although the firm has toyed with how these outlets are managed. In December the supermarket announced that the staffing of the phone stores would be outsourced to sales development firm CPM. On the announcement of the contract win, the sales development agency said that it would begin with the complete refitting and reformatting of the 13 existing Asda phone shops.

Linda Chassagne, CPM’s business unit director, said: ‘This is a specialist market and has required a complete strategic review, beginning with a mystery shopping exercise as part of an examination of existing sales practices, to provide us with a baseline for onward action.’

Retail approach

The retail environment in which a supermarket phone shop operates is different from almost any other. Although the mobile store-within-store format is not an unusual one, the contrast with the other products is never as great as in a supermarket – nowhere else do you have customers in who are also picking up a pint of milk. While there are notable examples of mobile concessions being placed in unusual retail locations – Hutchison Whampoa famously made use of its Superdrug stores to introduce the network to the UK consumer – those stores didn’t have the permanence of the supermarket Phone Shop.

The fact that these Phone Shops are predominantly present in the largest supermarket outlets, means that they are always a part of wider retail experience and often attract customers who may not have made a conscious decision to go phone shopping. The advantage this has is of course that these stores can reach demographics that high street phone shops sometimes struggle to attract – customers who want a phone, but are slightly intimidated by the technology or put off by the hassle of going to a smartphone-specific store. Tesco Mobile has been very successful in targeting these sort of customers with its MVNO offering, but has also found success in marketing hardware to them. The most recent example being Tesco’s tablet the Hudl.

This presents an opportunity to market new brands to customers who may not have the same prejudices. As a result, sales patterns in these types of retail outlets can be very different from the traditional high street phone stores. At Mobile World Congress, Tim Berry, national account manager for Doro UK and Ireland, explained that the brand would occasionally sell certain models in supermarket phone shops based on word of mouth. That said, these stores still ship their fair share of flagships and premium brands.  

 

MVNO combo

Most of the supermarkets combine a large retail portfolio alongside an MVNO offering. Tesco led the way with this offering; the brand has the largest MVNO in the country and was the first to begin rolling out Phone Shops in its superstores. However, the combination of the two services isn’t always complementary. The growth of supermarket MVNO was predominantly in the Pay-As-You-Go market segment. This is fine if the handsets are low-cost one-off payment handsets, but makes it harder to convert these customers into contract subscribers.

Tesco’s decision to phase out other networks from its Phone Stores suggests that the brand is strategically moving to a position where it can encourage customers onto contracts that might yield a higher ARPU. This is one of the trickiest transitions a brand can make, and it will be interesting to see whether it can successfully make the switch.

The fact that customers have been receptive to the branding of a supermarket MVNO has been one of the major drivers for these retailers in pushing their offerings to the consumer. CCS Insight’s principlal analyst of operators Kester Mann certainly believes that there remains the potential for further entrants to the space: ‘Tesco is the leading MVNO and has made some changes to its strategy in regards to the high street. ASDA and Sainsbury’s have established MVNOs now. It’s whether there will there be other supermarkets looking to move into this space, such as the likes of ALDI and Waitrose.

‘Looking at the MVNO landscape, it’s pretty mature in the UK, the number of possible new entrants is limited, unless there are companies that can offer something that isn’t already there. Finding new parts of the market or competing on price can be difficult.

‘Having the retail side for a virtual provider is a great opportunity – look at players like BT who face a challenge in explaining and articulating services it can provide. Having a strong retail portfolio provides the platform to engage with customers directly.’

It’s been a challenging period financially for the supermarkets recently. The problems that Tesco in particular has faced have been well documented, but it must be noted that while certain parts of the company have been sold, mobile has remained a part of the firm’s long-term plans. Mann certainly believes there is evidence to suggest that the brand sees growth opportunities in this market: ‘I guess that Tesco has gone down the route of focusing on the core telecoms service. The company has its challenges, but obviously sees telecoms as an opportunity.’

 

Quad play looms

The success of supermarket MVNOs was an early demonstration of the potential demand from customers for multiple services from one brand. As well as mobile, banking services and insurance were some of the other products offered to the consumer in low-cost, no-nonsense packages that often linked to wider loyalty schemes operated by the retail giants.

It’s interesting then that given the early adoption of this strategy, Tesco decided to relinquish some of its other quad play services to concentrate on its mobile offering. Clearly there were financial reasons for doing so, but given the wider market trends, it could prove a costly decision later on, as Paolo Pescatore, director of multiplay and media at CCS Insight explains: ‘Tesco’s announcement at the end of last year to disband its broadband service as well as Blink Box was driven by a number of financial pressures. But in the context of what’s happening in the market it may be seen a seen as a poorer decision later on. You can see why it did it; it wasn’t core to its operations, but it may have removed one of the assets key to competing later on.

‘There’s been a major change from a supply perspective and with all the major players moving towards offering multi play bundles. A big question is where does it leave the MVNOs? We see from our own consumer surveys that consumers see the benefit from buying a bundle from one provider. With companies such as TalkTalk effectively offering mobile for free, for a year, how are they going to compete with the established players trying to sell bundled services, how can they compete with BT?’

This will undoubtedly be a significant issue for the supermarkets to consider as consolidation continues in the operator space.

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