Despite several high-profile retail closures last year, the UK food and grocery market is forecast to grow by 14.8% between now and 2023, based on the latest insights from the IGD. This year, we will continue to see online sales perform well in wider retail, ably assisted by consumer’s ongoing desire for more convenient ways to shop.
So, what can the major stores do to keep pace with consumer preferences, whilst also managing rising costs this year?
Efficiencies are everywhere
Costs are undoubtedly the biggest concern for retailers this year, especially whilst our exit strategy for leaving the EU still remains unclear. We can’t control every single factor that affects our businesses, but the industry should always be looking at how it can mitigate costs, whilst not impacting on quality for the consumer. Brexit is a major reason finding efficiencies should be at the top of every retailer’s agenda for 2019.
At Newton, we know that opportunities are everywhere, even in the world’s best companies. Through our work with some of the UK’s leading retailers, we have been able to bring about significant transformations in the way they operate, leading to improved operations and substantial cost savings.
One way that frequently presents a huge opportunity for efficiencies is through the optimisation of stock levels. Take the replenishment of meat as an example. It might sound simple, but by delivering accurate information on stock levels in real time, stores can rotate products more quickly and ensure fewer items perish or have to be marked down. Similarly, in clothing, the correct knowledge of stock levels means stores can capitalise on sales by quickly replenishing fast moving lines. Stores can’t afford to give shoppers a reason to leave and find items elsewhere.
In reality, understanding and acting upon this level of data is complex, but it is possible to balance availability and waste – even at a store level. Other key areas retailers should take a close look at include how time-consuming, back office tasks can be automated so their staff can concentrate on helping customers in store.
The best of British
There are many UK-based businesses that will be looking to capitalise on the tariffs put on their European counterparts’ goods, which will make their produce more attractive. UK consumers are also increasingly in favour of buying British, particularly when it comes to fresh fruit and vegetables. Our research found that the second most popular consideration for shoppers was whether it had been produced in Britain (49%), just behind whether animal produce was free-range (50%).
There has been a lot of concern around the supply of products, particularly fruit and vegetables. In 2017, imports of these goods were £11.1bn, while exports were worth £1.2bn – giving a trade gap of £9.8bn. After Brexit, fresh produce from the EU may become more expensive and take longer to arrive, but as the cost becomes more aligned to homegrown products, stores will have an opportunity to benefit from provenance at competitive costs.
However, having strong and established relationships with suppliers will go a long way to ensuring businesses receive the required volumes, even from abroad. Ultimately, those that get in early and secure new deals will be treated more favourably in terms of price and supply, while those entering negotiations at the last minute may struggle. With just a few weeks left before Brexit, it’s vitally important that grocery retailers collaborate closely with their suppliers and bring in new solutions that can help minimise any additional costs they incur from elsewhere in their supply chain.
Online vs bricks and mortar
We’re also seeing a clear and sustained threat to physical stores from online retailers. Online stores are open 24-7; there’s never a queue at the checkout and consumers can shop from several outlets at the same time. Comparing prices and availability online is increasingly popular, as well as e-stores delivering at a time and place to suit the shopper. These challenges mean it’s imperative that physical stores maximise the productivity and effectiveness of the workforce they have to improve efficiency and build shopper loyalty.
Retailers already spend huge sums of money trying to ensure they have the right staff available at the right time. However, some businesses still continue to struggle with improving their in-store operations. Our research shows that almost half (48%) of grocery shoppers find slow checkouts their biggest in-store frustration. We’ve seen first-hand how optimising this one process can save a large retailer millions of pounds. Ultimately, consumers want a smooth buying experience and an increasing number are moving online to complete more ‘transactional’ or repeat purchases that don’t require an emotional engagement.
However, there is still an opportunity for the physical store to offer shoppers additional value by providing an interactive and exciting retail experience. Shoppers want the opportunity to see, touch and feel products, and to engage with other people to develop their product knowledge and gain expert recommendations. This model is well-established in the technology sector, for example, where an Apple Store has become a preferred destination for shoppers. Outlets that can enhance the in-store shopper experience are more likely to attract new customers and win the loyalty of existing ones.
Overall, technology enables us to automate some of the simpler tasks, which means retailers can invest more heavily in customer service. We then need to leverage the information we gain from customers and put it in front of our staff so they can really understand where value can be added.
How much impact will sustainability have?
Over the last few years sustainability has crept up the retail agenda and there are two major issues that now need to be addressed: food waste and the environmental impact of packaging.
A recent survey claimed that around a third of UK shoppers would change brands if goods were packed in unsustainable packaging, while 77% would pay more if the packaging didn’t damage the environment. These are powerful figures, but how much change is actually happening? While retailers are certainly making the right noises about changing pack formats – Iceland for example – food waste will be a major focus in 2019. Packaging, on the other hand, will take a little longer to see major change.
Newton research found that 92% of shoppers believe that supermarkets have a responsibility to reduce food waste. Although retailers have many opportunities to change the way they sell produce and have a positive impact in this area, there is a lack of education among consumers about how far stores can go without impacting the cost or appearance of goods. As such, over the year ahead retailers need to share more information about the work they are doing to reduce waste, as well as educating the consumer about the challenges they face implementing change. As long as consumers are mainly driven by price and convenience, the sustainability agenda will still be heavily influenced by these two factors.
Data can provide the answer
In all of the above scenarios the devil is in the detail. Retailers need to interrogate supply chains to see how efficiencies can be made and mine data to understand (and act on) sales patterns. They must also take a closer look at how to deploy staff to best advantage. Crucially, a single-percentage point of savings or improvements in any of these areas can add millions to the bottom line of a leading retailer.
