Retailers have been dealing with constant change for decades and if anyone has earned a break, they have. But the reality is that the change and the challenges aren’t going to stop anytime soon. If anything, the competition will just get tougher.
Early last year we wrote about the biggest trends in grocery retail for 2018. Those included the ongoing price war, e-tail getting a bigger share of the market, the importance of fresh food management and more. All of these are still relevant today and will keep on forming the retail spectrum.
Looking into 2019, we’ve again listed some of the top trends in grocery retail for 2019.
E-commerce keeps growing
Top of the list remains the continuing growth of e-commerce. The ongoing shift to shopping online is in fact also driving most of the other trends in the sector.
Shoppers have become used to fast home deliveries and click-and-collect options. The problem isn’t that many retailers haven’t managed to meet customer expectations, it’s that many haven’t been able to do it in a profitable way. Forbes wrote about this back in 2017, pointing out that Amazon, which accounted for about 45% of all US e-commerce at the time, was piling up cumulative losses in the billions and continues to operate at below average industry margins, even after 20 years in the business. Retailers are absorbing the costs of free shipments, promotions, and high customer acquisitions in the hope that they can outlast competitors and retain share. However, it’s clearly not sustainable in the long run and acting as a drag on their operational efficiency.
Retailers are absorbing the costs of free shipments, promotions, and high customer acquisitions in the hope that they can outlast competitors and retain share.
Part of the problem is that picking and last-mile costs have tended to eat heavily into profits. The good thing is still that more and more retailers are looking at automated options for picking and fulfillment. Meijer has recently added a new pickup option to stores and UK online-grocer Ocado is planning on building automated warehouses in the US with the help of its US partner Kroger.
Freshness, convenience, and ready-made foods
Convenience, takeaway food, meal kits, and ready meals are also a growing trend together with online grocery shopping. These trends are throwing grocers into competition with the food service sector as well as with each other as grocers are battling to optimize fulfillment and provide flexible delivery options.
One challenge is that grocery doesn’t lend itself to delivery as easily as food service. There are considerable additional picking and transport costs while food service outlets have benefitted from opportunities like Uber Eats. Grocery retailers haven’t yet found an obvious equivalent.
As grocers expand into eat-in options, like in-store kitchens and cafés, there are also demand-forecasting challenges. Luckily we’ve seen development in this area in form of factoring in the recipe or so-called bill-of-material of each end product and ingredient.
Other changes in shopping habits are reflected in evolving store formats. Out-of-town hyperstores seem to be giving way to neighborhood convenience stores. Lidl’s initial push into the US, which was based on large-format stores is undergoing a rethink and they are looking into smaller store formats. In the UK Tesco has opened a new discount store chain to win back shoppers from Aldi and Lidl.
Sustainability and ecological choices
Interest in sustainability and concern about consumer behavior’s impact on the environment was a major trend in 2018 and will be even more so in 2019. This will bring huge changes to retail as consumers increasingly care about making ethical, sustainable and ecological choices when they buy.
The trend is clearest in Europe, especially in the UK, where supermarkets are responding. It can be seen in Germany too, where the regional supermarket Bünting has gained considerable attention and customer approval for a sharp reduction in its CO2 footprint thanks to a radical optimization of its vehicle journeys. We expect to see a similar shift in North America in the coming years with US supermarkets offering more eco-friendly choices and developing more sustainable supply chains.
Millennial consumers are also increasingly influencing the way we eat; making healthier choices, many of which reflect their concerns about sustainability and the environment, including shopping for organic produce. Past experience, however, suggests that sales of organic produce are quite sensitive to the economic climate. If US trade relations or Brexit have negative economic effects consumers may well put price before principle, however, barring a downturn we expect organic food choices to become more popular.
With premium fresh products, such as organic meat, dairy and vegetables, we’d always urge retailers to remember that it’s doubly important to minimize spoilage through accurate forecasting because just one item going bad can wipe out profits on multiple sales.
Workforce management and finding talented employees
Lastly the labor market is unusually tight at the moment. The US unemployment rate is at a 48-year low. Businesses, especially in the retail and hospitality sectors, that want to attract and retain both permanent and seasonal workers, are offering higher wages and perks and are even trying to tempt recruits with hiring bonuses as they compete for talent.
We predict that 2019 will see retailers planning their labor needs more accurately than they do now.
However, food retailers are not only looking at incentives to ensure they have the labor they need. We predict that 2019 will see retailers planning their labor needs more accurately than they do now. Supply chain forecasts are already used to plan capacity and foresee bottlenecks in the supply chain. Leading retailers use this planning data throughout their organizations to support not only inventory planning but also capacity and workforce optimization both in distribution centres and in stores. They also help their suppliers prepare by sharing planning data with them as part of an increasingly collaborative approach.
So, to sum up, while 2019 will inevitably be hard on both bricks and mortar and e-commerce there are plenty of retail planning solutions that can be used to reduce the pain.
Grocery Retail Best Practices: To address the challenges in grocery retail supply chain, we’ve combined a best practice guide, Best Practices for Managing Grocery Retail Supply Chains, highlighting key approaches for increasing both responsiveness and efficiency in grocery supply chains.
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