Many of us would probably find it hard to remember a time when supermarkets and hypermarkets didn’t exist. Yet with the trends in shopping behavior and retail we are seeing now, the idea of a world without supermarkets and hypermarkets is becoming a real possibility. Many of you will dismiss this as hyperbole: but the trends are unprecedented. Just take a look at this one statistic. A decade ago two thirds of shoppers said that the supermarket was their primary channel for grocery shopping – Today that number is less than 50%. And the ‘big store’ retail model isn’t as robust as you might think. So let’s look at the unique, extraordinary, unprecedented pressure being put on supermarket and hypermarket chains, and see just how far from reality this scenario could be. And, most importantly what will happen to manufacturers and retailers as we enter this new phase of grocery shopping, and what you should do about it.
Supermarkets and hypermarkets are facing unprecedented competition
Let’s start with the most obvious part of the story. Shoppers have more choice than ever before about where to buy. Across the world, convenience stores are multiplying at an extraordinary rate and are predicted to continue to do so. And judging by the density of stores in some urban environments (such as Japan, Taipei or Bangkok) we are far from reaching convenience store saturation. Discounters too are growing fast. From their traditional heartlands in mainland Europe they are now taking significant market shares around the world, from the United Kingdom to the United States and Australia.
And of course there is online. Online operators are multiplying like rabbits. Existing retailers are opening online operations. There are online only players too: there are online marketplaces, malls, subscriptions. Even the Thailand Post Office is getting in on the act and setting up an online mart focusing on regional Thailand delicacies. There was a time when in most markets, big retailers would look at maybe two, three or four competitors. That world is a long way away.
Shoppers are changing too
None of this would matter, of course, if the supermarket or hypermarket shopping experience was wonderful. If shoppers loved their weekly shop, then none of these challengers would matter much. The trouble is, many shoppers don’t like the supermarket shopping experience much. And one can’t blame them. Large cavernous warehouses, unengaging shelves, plentiful out of stocks, inaccurate navigation, and queues. It can take a shopper 40 minutes to over an hour to complete a weekly shop. If it was a laugh-a-minute joyride that might be OK, but it isn’t.
As I’ve written before, shoppers are moving away from big weekly shops to a more fragmented shopping approach. Shoppers are enjoying the fact that they can choose to buy different things from different places, rather than having to compromise with the offer of one retailer for all categories. The myth that the one-stop-shop was what shoppers want is fast evaporating. Shoppers are using discounters for some categories, online for others, specialists for yet more.
Consumption is changing too
And beyond shopping, the way we consume is changing too. Ready meals are where it is at these days. To be fair, the big players understand this. They have been making ready meals for a while, and takeaway food, and even opening a bar in the store. But it is the convenience store operators who really have understood this. The newest convenience stores look more like quick serve restaurants than shops: many of them including seating. And unfortunately, when it comes to convenience, the large supermarkets are trapped in a paradigm of their own making. They build their business model on the idea that their version of shopping was the most convenient. They have adjusted their product offer to make consumption more convenient, but are trapped in the stores they built. From there they struggle to make shopping more convenient.
Irony overkill – obsession with discounts could drive shoppers away from stores
Shoppers are more obsessed with discounts (and one could argue that much of this has been driven by the big supermarket operators). For decades they have used supplier-funded deals to drive traffic to their stores. But all of this bargain hunting comes at a price. It lengthens the shop. Now there are some people (myself included, occasionally) who enjoys the thrill of the hunt and scouring shelves for deals, but when online apps can do this so much better, so much more conveniently, then this retail strategy might have failed. Too many discounts have made supermarket shopping less convenient. Less desirable. Wouldn’t it be ironic if the heavy promotional strategy designed to bring shoppers to stores, ended up doing exactly the opposite?
It doesn’t take much to kill a hypermarket
When I present at conferences on topics such as this, or at our ‘Shopper and Retail Disruption’ training programs, some people inevitably raise the point that not all shoppers are leaving supermarkets. So they may lose a small share of their business. That online grocery, while growing fast, only takes a relatively small share of the total business. All of this is true. Many people still seem to like the big shop. A visit to any supermarket or hypermarket still sees aisles full of archetypal weekly shoppers, pushing their laden trolleys around. So surely, the supermarket and the hypermarket will survive?
Not all shoppers are the same; and not all shoppers want the same thing. And therein lies the supermarket and hypermarket problem. Big store economics depend on lots of people buying lots of stuff. Their entire philosophy is built around scale. Stores are expensive, the inventory cost is huge: and all of that cost depends on their ability to turn a lot of cash, fast. And that requires lots of shoppers, spending lots of money. But what if the number of shoppers dips a little? And those shoppers that still come, buy less? What if they’ve already bought their razors on subscription, their wine from an online specialist, and their shampoo, coffee, rice and biscuits from a discounter? And won’t bother buying quite so much because next week will be busy, so we’ll just pick up something quick from the convenience store nearby?
Retail margins are thin: last year Tesco delivered a gross profit of just 5.2%, and that is one of the highest in the industry. Consumer goods manufacturers margins typically run into double digits. With low margins and high operating costs, a business requires to turn cash fast to be profitable. It doesn’t take much of a reduction in either traffic or basket size to put that model under pressure.
So what should retailers and brands do about it?
The consumer goods world is changing at an unprecedented rate. Most of the processes, procedures, team structures, strategies and ways of working simply aren’t designed to cope with the s of pressure the industry finds itself under, nor the pace of change.
Teams need to be educated in the new world of shoppers and retailers. They need new processes to enable them to work faster, and make better decisions, fast. New strategies are required that reflect the changing dynamics of consumers, shoppers and retail. Investment, in particular retail investment approaches need to be rethought. Lastly, organization structures need to be reconfigured to best face a more dynamic, challenging market.
At engage, we’ve spent the last decade creating solutions for this. As shopper and retail experts, we’ve seen these changes coming, and built solutions to help organizations address these challenges. If you’re interested in our Shopper and Retail Disruption Solutions, please get in touch. In a brief conversation we can discuss your specific situation, and work out how best we can help.