The COVID-19 pandemic has changed our lifestyle and daily habits in unprecedented ways. This has had strong repercussions for the way in which food is bought and consumed. Whilst the final long term effects of the crisis have not yet fully unravelled, consumer habits and demands have already forced grocery retailers to adjust their business strategies to stay ahead of the market.
The rise of online supermarkets
Online shopping peaked during the strictest months of the lockdown in 2020, with unprecedented penetration into the younger consumer market. Recent studies revealed that this trend is likely to become stronger during the second half of 2021 and beyond with 25% of consumers who already bought occasionally online stating that they would do so more regularly and in larger quantities. E-commerce sales in the US are expected to exceed $100 billion in 2021 after the 54% growth experienced last year. Although the supply chain infrastructure is less developed, consumers across European countries exhibit the same strong demand for shopping grocery online as in the US, offering a great opportunity for retailers to differentiate from their competitors by sharpening up their online offering.
There are several significant factors that are holding back those who never buy online or rarely do so. For example, one out of two consumers in these cohorts believe that delivery charges are too high or that minimum order requirements are too extensive. Of the other reasons given almost half state that they prefer the personal contact in stores to the isolation of online shopping. These and other stated factors point to the need to improve the established online models and unlock the massive potential for significant market share to be unlocked from these latent pockets of the market.
Seamless transition from walk-in stores to online grocery and new appealing incentives, such as free shipping or personalised discounts will be or are some of the factors that are being rolled out to expand the customer base and stay relevant in this new omnichannel epoch.
Sustainable and convenience food
A recent series of surveys from YouGov’s International FMCG/CPG Report 2021 highlighted the increase of sensitivity toward more sustainable products. Three out of five consumers in Germany and UK expressed their willingness to pay more for environmentally friendly choices. This trend is also present in other countries such as the US and Australia, while Japanese grocery shoppers seem to have more mixed feelings regarding sustainable products with only 42% of their consumers neither agreeing nor disagreeing with the statement.
An increasing number of consumers have started to prioritise “convenience” food in terms of meal options that are healthy, quick and easy to prepare. Exploiting this trend new start-ups and established businesses have flooded this demand with supply providing anything from more hands-on solutions with recipe cards and dedicated fresh ingredients (e.g. HelloFresh, Mindful Chef and Gousto) to ready box meals that require only heating and mixing before consumption (e.g. Cook and Charlie Bigham). Indeed, Charlie Bigham was recently the focus of an article in the Financial Times which cited the business as one of the most astonishing growth stories and one of the fastest growing businesses in the UK over the last decade. Part of the attraction of Charlie Bigham are their core values which are based on sustainability and producing practical, delicious food. They also maintain close collegiate relationships with their suppliers and are dedicated to the use of recyclable packaging materials.
The “new” normal: opportunities & threats
This change in habits may represent a new opportunity for grocery stores in particular and retailers in general to attract new customers and increase their market share if they are able to accommodate customers’ new and changing needs.
Online and Technology have become core competencies in grocery and retail and these factors directly correlate with the business’s potential to improve both the overall strategy and the underlying shopping experience. Despite the recent increase in takeaway and deliveries, the lifting of lockdown restrictions has shown that grocery stores might continue to benefit from the switch to permanent or more frequent remote working. Three out five Britons declared that they are willing or intend to Work-from-Home (WFH) once COVID-19 is over at least some of time. This will entrench the swing in demand away from casual dining towards grocery bought home cooked meals and associated purchases.
Whilst this shift represent a great opportunity for grocers to attract new customers and higher revenue it does not come without strings attached. Many of these new customers are increasingly price sensitive and also want products to be more sustainable and ethical. This could put significant pressure on the profitability of grocers and retailers as demand shifts away from higher margin products. In terms of quality and price, grocery shoppers are as ever led by their economic circumstances. Younger are more motivated to buy healthier and environmentally friendly food and beverage choices even if this comes at a higher cost. The higher income segment still want premium produce albeit in smaller volumes and the lower-income segment remains focussed on price even if this is at the expense of nutrition or sustainability. This polarised trend is a core focus for CEOs in the grocery industry and meeting the demands of these competing and often contradictory groups is likely where the battle will be won or lost.
The COVID-19 crisis has shifted consumer habits in unprecedent ways presenting new challenges for grocery retailers. The return of restaurants, value becoming important again and the broadening influence of online shopping will put stress on conventional business models forcing retailers to make substantial efforts to maintain their profitability. Under these circumstances, supply chain and advanced analytics will likely be the main areas of improvement to further optimise margins and increase company market share. Bold moves should be considered for more flexible solutions that allow grocers and retailers to maximise customer satisfaction. Betting big and being agile could make a difference in this fast moving new post-Covid world.