In discussing car ‘supermarkets’, we make no specific assumptions about what their origins might be. They could be set up, in a post-Block Exemption environment, by dealers, or more likely, by dealer groups, by retailers from other sectors, or by new entrants. While car supermarkets now have a major involvement in the used car business, they have not yet played an overt part in the retailing of new cars. Although used car supermarkets do sell cars that are to all intents and purposes new, they normally register them and sell them as nearly new. Some have managed to obtain stocks of cars that are in short supply among UK franchised dealers as exampled by Trade Sales, an independent used car supermarket in the UK, selling Audi A2s and other models in short supply below list and franchised dealer price.

However, as the existing Block Exemption would not prevent any manufacturers who wished to do so from selling in new or used car supermarkets, it is worth trying to assess why none have yet appeared.

Manufacturer Attitudes to Car Supermarkets
The most obvious point is that manufacturers can see absolutely no benefit to themselves in selling in this way, and that most would be extremely concerned about the dilution of corporate identity and brand value that would be inevitable in a car supermarket-type environment. Although it might be expected that the gains and losses for different brands in selling alongside each other would even out over time, the fear would be that any one brand could seek to establish a competitive advantage based on price. This could very quickly turn the whole competitive process into a rapidly accelerating downward spiral in which price became the only issue, and through which the little profit remaining to be derived from new car selling would be squeezed out altogether; cars would have become commodities.

“A key issue centres around the portrayal of the brand itself at dealership level. The importance of this should not be underestimated or trivialised in any way. Brands reach into the very soul of what customers want, their lifestyle, their needs and their expectations. A large new vehicle supermarket type approach is unlikely to satisfy significant customer segments, nor maximise its profitability.” 
 – Communications manager, volume car manufacturer 1

“Displaying by product type doesn’t work either; buyers don’t necessarily see their choices that way. Worse, any supermarket approach is likely to reduce the range of customer choice by restricting sales to proven strong sellers and predictable option choices. We can accept dealers holding more than one franchise, but see the separate management of showrooms as essential.”
– Communications director, volume car manufacturer 2

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New Product Development and Consumer Choice
To apply a supermarket strategy to cars would pose problems, since the scale of an incentive or a price reduction to move a slow seller would be so large. The risks would be greater if car supermarket operators were not prepared to give space to a new product for which demand was unproven. To take a few examples, would cars like the Fiat Multipla, the Ford Ka, the Mercedes-Benz A-Class or the Renault Scenic (let alone the Smart) have found their route to customers as easily via supermarkets as via more conventional outlets? There is a real risk that selling through car supermarkets could, by playing safe, end up reducing the range of choice open to car buyers. For a parallel, consider the way in which multiple retail supermarkets have approached the selling of books and videos. As with cars, there is an enormous range of choice available with some titles selling fast, while others may sit on the shelves for long periods. The response of the multiple retail supermarkets is to make an extremely narrow selection and sell at a discount, maximising volume from the narrowest possible range.

The car supermarket route is the one preferred by the consumer representative bodies, which favour a wide choice of product on a single site, as do many consumers themselves. They assume that it would mean lower prices, although the example from food retailing makes this doubtful, supermarkets tend to kill off their competitors with low prices that are then allowed to drift, slowly and gently, upwards. There is also the aspect of consumer behaviour to be considered. Bodies like the Consumers’ Association like to assume the existence of a totally rational consumer who goes out to buy, for instance, a five-door hatchback with an engine of around 2 litres, or a small city car costing less than £7,000. These would be consumers who have effectively defined their requirements by functional parameters, and their needs could be met very satisfactorily by supermarkets that defined customer demand in this way and set out their offerings accordingly.

However, although this may be the right way to sell high volumes of used cars, it is not, actually, how most buyers of new cars approach the process. All the evidence suggests that, in spite of the strong trend of car brands to converge in quality and price, most buyers decide on their brand and model, and then shop around for the best deal. It is still quite rare for them to make direct comparisons between apparently similar models, competing in the same market sector, offered by different manufacturers. There is research evidence presented in the following consumer section of this report that suggests however, that they would be more likely to do so if the alternatives were being offered side by side. After all, that is how many used-car buyers behave. That is the fear of the manufacturers, that cars would become commodities and that competition would become essentially price-driven.

Given the complexity of the typical volume range, which can potentially extend to some half-million variants, car supermarkets would be even less able than today’s franchised dealers to display a representative range, if the idea was to show a spectrum of directly competitive vehicles alongside each other. They would have to restrict themselves to proven strong sellers, built to the most popular specification combinations and offered in the most popular colours. They might stock basic models only, and supply higher-specification models on a build-to-order basis, although even this route poses some problems, as even the definition of a ‘basic’ model can be difficult. This would not greatly increase real choice and it could have a stultifying effect on the development of new vehicle types for which demand had yet to be established.

The best potential for new car supermarkets might actually be in districts of low population density, where even banks and ordinary supermarkets are thin on the ground. Consumers in rural areas might find new car supermarkets useful, provided service facilities were also available. So there might be an opportunity for new car selling through supermarkets in rural areas with low population density, where exclusive dealerships dedicated to single franchises would not be viable such as in rural parts of Wales, Scotland, Ireland, France, the Iberian peninsula and the Scandinavian countries. There are large areas in which some brands go without representation because it is not compatible with the large solus dealership approach that the manufacturers prefer. But would not shared representation be better than no representation at all? Or would the customers in these areas actually be better served by an increase in service points that also offered the facilities for the order, supply and delivery of new cars?

Expert Analysis

This article is extracted from the MFBI report, The Future of Block Exemption and Motor Vehicle Retailing in the UK and EU’. For more information, and to get your own copy, click here


Car supermarkets owned and operated by franchised dealers could come into being even under the current legislation, as a disposal route for over-stocks of volume cars. Up until now, the most common disposal mechanism for excess stocks has been for dealers to pre-register them and trade them to used-car supermarkets, to be sold as nearly-new. This has worked well while new car prices in the UK have been set at levels generally higher than in most other European markets, and the nearly-new market have enabled realistic transaction prices to be established. Now that new prices are falling, marginal buyers may switch from nearly-new to new, and nearly-new values are coming under pressure.

It might be preferable, not to pre-register, but to transfer the stocks of slower sellers, such as cars with less popular colours and specifications, into supermarkets, and offer them at lower prices, with discounts lower than those traditionally applied to nearly-new. This could be an option of interest to those dealer groups that hold a number of different franchises, even if unattractive to the manufacturers supplying them. The specialist car makers, more concerned
about their brand value than the volume manufacturers, would probably prefer to avoid this prospect by a better balance of supply and demand, something that they have traditionally managed to achieve.

Supermarket Own-brand Cars
The need of the weaker volume manufacturers to dispose of surplus stock, combined with the possibility that the sale of cars through car supermarkets could become more acceptable, might also lead to the appearance of a retailer’s ‘own brand’ car. This is something not seen since a brief experiment by Sears in the USA in the 1950s. There has been no raison d’être for such a product as long as the car markets continued to grow steadily. However, in mature markets where demand is essentially replacement rather than incremental, there will always be some manufacturers who enjoy less success than others, and who might find the idea of being able to maintain production levels by making large batches of cars, for sale via car supermarkets, an attractive proposition.

Back-up and support arrangements need not be a problem. It would be relatively easy for car supermarkets to set up the necessary arrangements for the trade-in of part exchanges, via traders and auctions, or to run used-car disposal operations of their own. After-sales could be sub-contracted to a nationwide service chain, such as Halfords or Lex Autocentres in the UK, Norauto and L’Auto in France.