After the tumultuous year that was 2020, what can we expect in the grocery sector in the year ahead? In this second article I will consider the changes impacting and affecting retailers.
Readers can access our first article on trends impacting shoppers here.
4. New wave of store format innovation
Across the Big Four we’re seeing a new wave of format innovation centred around compact formats that better serve local missions; Sainsbury’s has launched its Neighbourhood Hub stores and Tesco has opened up its first superstore in six years, in Penwortham, Lancashire. Meanwhile, Morrisons is taking its inspiring Market Kitchen concept to new locations. Following a launch in Camden last month, the format will come to Leeds, Liverpool and Lincoln in the months ahead providing its stores. At the same time, it is also pressing ahead with its expansion of the Morrisons Daily format through its wholesale partnership with McColl’s to build its presence in the convenience sector. Finally, stay close to developments at Asda. The new ‘Asda on the Move’ format has potential to expand Asda’s presence greatly on forecourts while partnerships with non-food retailers and foodservice specialists will be key to reviving the fortunes of large stores.
5. The future of online: how should the channel be developed?
Following an exceptional surge in online sales triggered by the pandemic, the need to make the channel more profitable has become more pressing to protect overall margins. Key here will be to encourage more shoppers to use Click & Collect which we estimate is 6% more profitable than using home delivery. It’s more profitable still if micro fulfilment centres are used; our research indicates a 1.2% margin on each order is possible by making Click & Collect a sustainable long-term solution*. Retailers will also want to secure the loyalty of new online customers they have acquired during the pandemic. This could lead to the rise of the omnichannel loyalty schemes similar to Walmart+ in the US.
We will also see further expansion from the aggregators, with Deliveroo and Uber Eats providing rapid delivery services for many of the big grocers and providing a way for convenience store players to operated online. A challenge for retailers is to get shoppers ordering through their own sites to control how their offer is presented and gain customer data, limiting third party involvement to fulfilling the order.
6. Sustainability: climate change conference will heighten the need for progress
With the pandemic making people much more conscious of the links between their health and that of the planet, retailers are committed to progressing strategies on sustainability. Alongside actions to reduce plastics usage, expect a concerted drive to encourage shoppers to make better choices. The COP26 UN Climate Change Conference in Glasgow in November is likely to impact shopper behaviour so retailers and suppliers should work collaboratively to meet the appetite for more sustainable solutions.
It’s likely we’ll see a repeat of the Blue Planet II effect. Prior to the release of the David Attenborough fronted series, 28% of shoppers told us that their food’s impact on the environment was an important consideration to them. By the end of Blue Planet’s run, this was 40% - and it has remained at that level ever since.
Annualisation of pandemic impact imminent
For all retailers, delivering sales growth against the unique trading patterns of 2020 will prove exceptionally challenging. This week sales begin to annualise against the start of the pandemic so it will be extremely difficult to deliver growth against the panic buying seen a year ago, and as the foodservice operators in the months ahead reopen they will reclaim sales from the retail sector. Retailers will therefore need to be resourceful to achieve growth, competing harder on value to support those facing financial challenges but also providing inspiration and convenience to minimise the loss of sales to the foodservice sector.
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