What sits behind F&B brands partnering with supermarkets?

Paul Langston, Partner at CACI

First published in MCA, June 13 2024

F&B brands have appeared in supermarkets for as long as I can remember. It’s always made sense – a grocery shop can take hours, and by the time you’re done, a pit-stop for a burger or coffee is very appealing. What we’re seeing now, however, is a new wave of hospitality operators entering the supermarket world, Leon within Asda standing out. So what makes this new approach right for the businesses, and their consumers?

Another more recent collaboration is easier to get your head around. Gail’s and Waitrose would appear to have similar customer demographics, and with the former’s expansion in recent years, they cover roughly the same geographic areas, more focused on southern England. Waitrose could hold firm and deliver a competitive café and bakery offer, but Gail’s is rapidly gaining positive brand equity, so the partnership should have mutual benefits. Add to that the fact Gail’s has sold a range of products in Waitrose for a while now, and you also have proof of concept on the list of reasons to join forces.

This is evidenced by our customer segmentation tool, Acorn. At the moment Gail’s rely heavily on our two most affluent categories, Luxury Lifestyles and Established Affluence, which cover only 15% of UK households but deliver more than 50% of their sales. Waitrose also resonate with these categories, drawing 42% of their sales from them, but cut through more with the middle affluence categories, Thriving Neighbourhoods and Steadfast Communities. There is therefore some small disparity, making it an opportunity for both Gail’s and Waitrose to appeal to only a slightly broader demographic, not pushing too far away from their existing core customers.

Demographic and geographic likeness cannot be given as justifications for Leon entering Asda, however. In fact, it’s probably the extent to which these two elements differ that makes the case.

The partnership has of course been driven by the nature of the ownership of both, but just because two brands are connected in terms of corporate structure, it doesn’t mean they will work well side-by-side. In this case what Asda gives Leon is clear: exposure. As mentioned, Leon generally focuses on office worker populations, so Asda as a largely out-of-town supermarket with nationwide presence gives them easy access to a new market. To quantify: only one-third of Leon’s sales come from outside London and the South East, whereas the proportion for Asda is 84%.

That exposure will be meaningless, however, if Asda shoppers aren’t interested in Leon, so is placement in this new market right for them? The average transaction value (ATV) of Leon – measured using our Brand Dimensions tracker – does give cause for optimism. At time of writing, Leon’s ATV is competitive, when comparing with the types of F&B operators you might expect to find in an Asda. Leon is currently sitting at around £9, on par with Subway and lower than McDonald’s (approximately £10), Burger King (£13) and KFC (£13.50).

Leon’s typical customer is a single-purchase worker, so it isn’t a direct comparison with more family or group purchase brands like those mentioned, but anyone who’s been into one of those recently will have noticed price rises that make even individual purchases close to what you might expect from Leon.

There are also signs that Leon is looking to drive greater value. They already have items on the menu that are comparable with the price of a meal from another QSR chain, and now what Leon describe as ‘the UK’s most affordable coffee subscription’ is part of their offer. A coffee subscription might not be what a weekly Asda shopper is looking for, so that’s clearly targeted at their core office customer, but it does paint a picture of a brand that wants to increase its appeal across a wider demographic of spending power.

Positive signs, but what does that demographic picture look like?

The majority of Leon’s customers come from our more affluent categories and groups, with a particular focus on those that represent city centre workers. Leon over-indexes most with the Flourishing Capital group from the Luxury Lifestyles category (representing 5% of sales but only 1% of households), Prosperous Professionals from Established Affluence (12% versus 3%), and Up-and-Coming Urbanites from Thriving Neighbourhoods (11% versus 3%). All groups most found in wealthier London areas. They do also resonate with one lower affluence group, Tenant Living (12% versus 8%), which mostly covers young workers and students. All of this is unsurprising, given Leon’s focus on office-heavy locations, city centres, and transport hubs. Just as unsurprising is the complete role reversal we see for Asda.

The bulk of Asda’s customers are instead from lower affluence categories. They do cross over slightly into the middle affluence, the groups that typically live out-of-town, but really appeal most to Hard-Up Households and Limited Budgets from Stretched Society (12% versus 8%, and 8% versus 5% respectively), and Cash-Strapped Families from Low Income Living (11% versus 8%). These brands fundamentally appeal to different people, so even with exposure benefits, encouraging ATV comparisons, and a shift to make the offer more accessible, there is an element of risk here.

Two very different partnerships, arrived at for very different reasons. ‘Out there’ food and fashion collaborations are quite common nowadays, usually as a marketing ploy, but you very rarely see two brands connected in partnership where customer synergy isn’t clear. Leon and Asda, while not rolling off the tongue as Gail’s and Waitrose might, still have a strong data-based rationale for joining forces. Only time will tell whether that’s enough for them to see sustained success.