10 post-pandemic opportunities for online grocery retail

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It is difficult to predict with any certainty what further twists and turns await the UK grocery sector, but demand for online shopping is likely to remain high, albeit at lower levels than during the peak of the pandemic. While some of the initial costs of online expansion (such as technology and systems) have already been absorbed, higher service costs will continue, and retailers must find new ways to protect profitability.

While shoppers prioritised convenience and safety during the pandemic, turning to online purchasing and demonstrating greater reliance and loyalty towards a single retailer, this behaviour is already changing. According to a recent survey conducted by 4C Associates, there is an increased focus on value for money together with rising concerns about sustainability and it is clear that there will be an increasing need for retailers to compete on price and improve their green credentials.

Increasing price consciousness is demonstrated by Kantar data, which showed that during the 12 weeks to 13th June 21, Aldi was the fastest-growing grocer with a 0.7 percentage point increase in market share, while Lidl’s percentage share increased by 0.3. Not only will retailers have to sustain high levels of online business, but they will also face greater competition. There will be a reversion to grocer fluidity for consumers as they move back away from ‘big weekly shop’ behaviour sourced from a single retailer.

In addition, new competitors have emerged, including Russian discount store Mere, which plans to roll out 300 UK stores. Online competition has also stiffened with most grocers strengthening their offering or using outsourced provision. The growth of market disruptors such as Gousto and Amazon Fresh as meal kit providers and other non-traditional grocers is also threatening the status quo. It is likely that grocers will need to continue with enhanced cleaning protocols and safety measures to reassure and protect nervous shoppers, which will add to operating costs.

But what are the opportunities that lie ahead for online grocers in 2022?

  1. Improving online margins

Persisted market share will undoubtedly favour those with the most attractive online offering. But it is essential that retailers ensure that they are able to run their online business at an acceptable margin over the longer term, especially as competition and consumer expectations increase. To achieve this, retailers must undertake extensive profitability analysis across both products and customers to determine what is suitable for the online channel, and what is not.

  1. Efficiency improvements

With in-store grocery retail already being a low margin operation, the additional costs associated with picking and delivery of goods adds more pressure. The key to providing cost-effective e-commerce as a service is operational efficiency, with a relentless focus on cost. Technology is key, as demonstrated by the use of artificial intelligence by Ocado – whose robots can pick a 50-item order in 5 minutes. Supply chain collaboration and outsourcing may be the key to driving higher efficiency. Recruiting reluctant online shoppers could provide an opportunity to further scale operations and efficiency improvements, thereby increasing margins.

  1. Fast-track delivery

At the same time, retailers must also look forward and capitalise on the opportunity to meet the demand for faster delivery services, particularly for top-up and distress purchasing. Tesco has entered this space with its Whoosh platform. Competition in the rapid delivery space is growing fast, including entrants from outside the supermarket sector, so it’s important to get ahead of the pack. Aldi, Morrison’s and Sainsbury’s are partnering with Deliveroo, and collaboration will be key to capitalising on this opportunity to meet customer demand and create premium-priced services.

  1. New cost models

An alternative way to cope with this consumer behaviour change would be to pass on the additional cost to consumers by charging a premium for the online service. However, the major retailers are still yet to blink first on this issue.

  1. Seamless transition between online and offline

Amazon Fresh has blurred the boundaries between online and offline, with its new convenience store in London, which takes shopper convenience to a new level. Technology, innovation, and collaboration will be key to devising new solutions and harnessing the untapped potential of shoppers who are reluctant to try online purchasing.

  1. Right-sizing bricks and mortar

With a much-increased proportion of grocery sales made via online channels, the consequent

reduction of in-store footfall presents an opportunity to minimise and optimise the utilisation of bricks and mortar premises. Other changes in business practice, such as external automated picking facilities, can reduce physical space requirements yet further. As a result, retailers have the potential to enhance operational efficiency and profitability.

Reduced development costs of smaller footprint new stores are one of the potential upsides of the online shift. There are also good opportunities to optimise existing space, without compromising store accessibility, by forming in-store concession partnerships. This can drive new revenue, while also developing the customer experience and attracting new customers, who would otherwise shop online or with competitors.

  1. Managing competition

Grocers who have built customer loyalty during the pandemic must push hard and find new ways to retain their market share. They must meet growing demands for value and sustainability while continuing to reassure shoppers that stores are safe places.

  1. Retaining and attracting customers

Capturing, analysing and using data to better understand customer needs and create tailored

sales and marketing strategies at a hyperlocal level will be key to improving customer service and retaining and attracting shoppers. It is important for grocers to use loyalty schemes in ever smarter and more targeted ways to maximise market share.

  1. Sustainability

Lockdown created a renewed appreciation for the environment and local community, so if retailers can source food locally to support regional producers and minimise food transport miles, they can meet the growing customer desire to shop more sustainably. This can provide a point of differentiation with competitors and provide opportunities to create higher margin product ranges. By shortening the supply chain, retailers could also benefit from reduced supply chain risk and cost.

  1. Improving product margins

To offset slim returns or losses from delivering low margin items, retailers must find new ways to maximise sales of higher-margin products, such as convenience and non-food items – both online and in-store. There is a huge trend towards healthy and sustainable convenience foods and home cooking kits, which demonstrate new opportunities to drive sales of premium products and demonstrate green credentials.

To contact 4C Associates, book a meeting with us here. 

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