The Shape of Food Retailing in the New Normal: adapting to new realities
The Covid-19 pandemic has created big opportunities for forward-thinking retailers, foodservice providers, wholesalers and brands that have the courage to adapt and invest in the new normal, according to a new report The shape of food retailing in the new normal: adapting to new realities.
Co-authored by Scott Annan, a trusted advisor for many in the convenience industry and experienced global authority on convenient retailing; and Dev Dhillon, who has worked in senior roles within the world’s largest foodservice organisations and is an industry specialist in convenience, coffee and food to go, the report aims to fire start a debate about how the industry can emerge stronger from the pandemic, more resilient and fit for the future – the new norm.
Beyond this detailed feature, readers can Register here to watch our Global Convenience Store Focus “Shop Talk Live” webinar featuring the authors on Friday 17th April at 14.00-14.45 BST.
With contributory thinking from The Independent Retailer Owners Forum; The Retail Leaders Forum; Aryzta Ireland & UK; Delice de France, Newtrade Media, RI (Retail Insight Ltd), Ubamarket and TOMRA Solutions, the report navigates readers through the impacts of the coronavirus pandemic on the consumer, business, the economy, supply chain, the environment and technology and proposes likely outcomes.
Top line takeaways include:
- The CTN is a redundant format and a foodvenience-style operation is the only viable format in urban locations
- We are on the cusp of the most aggressive grocery pricing war in modern history and convenience retailers must play to their strengths and community involvement in order to differentiate and win
- There will be no ‘V’ shaped recovery and it will be the biggest, deepest recession/depression on record that will demand a new Government response and economic model
- Environmental issues will take a back seat and retailers will need to invest in the health and safety of their food environments with plastics likely reintroduced to shore up consumer confidence
- Traditional routes to market could be disintermediated but new collaborative models will emerge providing retailers with better guidance and flexibility
- Self-service till technology is now akin to the typewriter and will be replaced by scan, pay and go options but for hygiene reasons versus ease and speed
For Annan, Covid-19 has reset the dial and that when the ‘lights come back on’, things won’t return to normal. “We think there is a fundamental change here. The winners and losers will shake out but an awful lot of opportunities are showing themselves. We’d like to get a debate fire-started as to how do we accept what’s changed and get ahead on the opportunity,” he says.
Recent trends and discussions on the developments in convenience retail provide a useful reference point for Covid-19, Dhillon adds.
“Those conversations and understanding the building blocks of all the things that are changing in convenience has been a useful reference point for Covid-19 because things have suddenly moved very quickly in spaces like sustainability, payment mechanisms, food to go and the grocery balance,” he says.
A further motivation for the report was to wipe out negativity, Dhillon adds.
“While convenience as a retail segment has had positive feedback over its resilience and the way it has responded to the community crisis, from an industry perspective we could imagine there would be a lot of naysayers and doom merchants over the next few months as the economic reality of Covid-19 hits. We wanted to inject a positive narrative into the discussion,” he says.
Consumer behaviour
Changes in consumer behaviour due to restrictions on movement and new working from home regimes, are impacting retailers in different ways, according to the report’s authors.
“We have convenience retailers who have done a phenomenal job and current business would be up by up to 80% but we have also got convenience retailers who are more city and town centre based who are down by the same equivalent because of reduced customer flow and, for now, what people want is basics,” Annan says.
Convenience stores have come into their own during the crisis, as people recognise they can shop locally and ‘relearn’ how to cook, adds Annan. While he anticipates a rebalance in future, with some people working from home all of the time and some for a few days a week, it will change the way we shop, eat and consume, he says. Home deliveries and click and collect services, which are all spiking massively, are likely to be retained.
“Independent retailers are being heroic in getting these things in place and some times over night. They are massive changes because they see it’s what the consumer wants,” Annan says.
Dhillon foresees a divergence between larger convenience formats, which deal with lots of different shopper missions, and small formats, that have either been a CTN or pushed towards foodvenience or food to go.
While home working is not going to be the exclusive working mode for society in future, Covid-19 has shifted the journey of the white-collar workforce in lots of industries 10 years ahead from where we would have been, Dhillon maintains.
For many businesses, the economics won’t sustain the infrastructure of office buildings and satellite places to work, he adds. “Even if that small percentage shifts to more of home working model, that’s going to substantially impact on footfall in urban centres. Add into the mix, most city centre or highly urban formats have got a toxic mix of high rents and high business rates, challenges in terms of retention and recruitment of staff, they do begin to look like very difficult businesses to sustain in the future. That’s a commercial reality. I believe the urban CTN is a redundant format,” he says.
The report suggests the emergence of foodvenience is the only viable format for an urban location, other than in travel hubs and hospitals and other high footfall and transit populations.
The offer will be for both collection and delivery and it need not be state of the art tech, the report’s authors add.
“One thing that has been proved in the last few weeks is that you don’t have to overcomplicate things when delivering to customers or developing those channels,” says Dhillon.
He references retailers that are not using not apps or digital systems but just sending out word documents to their customers, which they are filling in with what they need and submitting via WhatsApp. “This new found agility to get things done will remain and new formats that emerge will be driven by good tech but retailers will not feel like that they’ve got invest £500,000 on developing the systems to make it work,” he says.
The comparison with the financial crisis in 2008 could be not be starker.
“It is a very positive outcome for convenience,” Dhillon says. “Go back to 2008, what we did not have was every single village and town with a Facebook page where people could celebrate the heroes in their village and community. Independent convenience stores have attracted a whole different world of loyalty and love off the back of their response to COVID. Future openings of multiple grocer outlets in these communities is going to create a much higher strength of feeling than would have existed three weeks ago,” he says.
Competitive landscape
The report discusses how business conduct in a crisis can have either a positive or negative impact and will either drive or discourage shopper loyalty.
Annan states the move by multiple retailers to hire new staff has been applauded. “It’s a different discourse from before – they are saying “we are all in this together” and they are hiring people from the other side of our industry – foodservice – which is being hammered; and they’ve done it in days and weeks. That kind of behaviour is remembered,” he says.
The report suggests retail social responsibility has moved towards the standards and actions ingrained in Japanese retailers when national disasters occur and that multiple retailer collaboration will be on the cards for the good of society. However, the report’s authors warn the competitive landscape will return, and in force, when the lights are turned back on.
“It feels like we have painted a pretty rosy picture for convenience but we have to remember we are walking into the most aggressive grocery pricing war in modern history,” Dhillon asserts.
“A significant proportion of the the population are going to be economically challenged over the next two to three years and the standard way that our grocery multiples will respond to these conditions is by massively and aggressively pricing their core product,” he says.
In this scenario, very significant pressure will be applied to the supply chain to support a promotional strategy, he adds. “For convenience to survive in that environment it has to differentiate itself as it won’t be able to compete on price,” Dhillon says.
The report’s authors recommend convenience retailers harness their strengths of location and community involvement and differentiate the offer with food for now and services to appeal to those people who are working from home.
“The industry, and particularly independents, have got to harness the strengths of the long standing relationship they have had with their community, the level of intuitiveness they have and one to one relationships with those customer groups because, to be honest, it’s going to be carnage out there for anyone who is trying to fight for the share of the pound,” Dhillon says.
As to the likely timeframe, the report’s authors predict that once the supply chain is honed to remove complexity and provide the right level of choice and there’s a fix on the actual number of job losses, we will enter a steadier state and begin to see some quite aggressive activity.
“I imagine that in the board rooms at multiples there are teams dealing with the now and teams preparing for the future,” Dhillon says. “Those tasked with preparing for the future will be aggressively challenging suppliers to adjust to the new market. And price is the major metric.”
The role of the two top discounters, Aldi and Lidl, who were not as mature in the 2008 financial crisis will also provide an interesting dynamic in the ‘new normal’, researchers add.
Economic impact
The economic impact of the Covid-19 pandemic will be extreme, the report warns.
Annan suggests it will be the biggest, deepest recession, if not depression, on record. Many hospitality outlets will not reopen. “Lots of businesses’ lights won’t come back on,” he says. “It’s not going to be a ‘V’ shaped recovery, not even in China.”
UK economic output is forecast to decline by 15% and unemployment double in the second quarter of the year, according to the Centre for Economics and Business Research. It expects the steepest contraction since comparable records began more than 20 years ago.
Compounding the issue, Government does not properly understand SMEs, researchers add.
“This accelerates so much of the failure in bricks and mortar retail that Government will have to respond,” asserts Dhillon. “When faced with the demise of high streets around the country, Government will be forced to have a rethink on their impact on the economic model.” The National Living Wage increases and rules regarding the removal of certain contract types may need to be relaxed in the short term to enable businesses to remain viable.
Further, salaries may need rebalancing in order to create a pipeline of jobs for people to go into. According to Dhillon, the crisis has shown that a gig economy and a large number of people in casual working comes with its risks. “Government will have to react to enable businesses to operate,” he says.
Environmental issues
Environmental issues including climate change, air, noise and plastic pollution, the oceans, recycling and government reverse vending initiatives have temporarily moved behind coronavirus in priority, the report shows.
“They won’t go away but they are not really going to get any thought or consideration for three years and, if a depression, five years,” Annan states.
“Does that stop personal behaviour? No, an individual will still do what they do but in terms of coming back to being core to major grocers’ sustainability goals, they will not be taken out of the report but it’s my view that they are not going to get anything more than lip service attention because the basic hierarchy of needs is more significant,” he says.
However, health and safety in food environments including convenience retail will be very high on the agenda, researchers claim.
“If you were to look at hygiene practices in foodvenience and convenience businesses globally, they are not as strong and embedded as the wider out-of-home feeding market,” Dhillon maintains. “We’ve all experienced scenarios in convenience stores where we’ve looked at a self-serve food item in a hot cabinet or ambient display with questionable cleanliness.” he says. That just won’t cut it anymore.
“Consumers have completely reset how they assess health and safety in food environments now,” Dhillon says. “I never thought I’d see the day when people walk around in a supermarket wearing gloves. It’s going to change behaviours and people’s perceptions will change and; unfortunately, we may have to start introducing plastics into some parts of the offer because otherwise consumers won’t have confidence that it is safe.”
Investment in store environments will be critical throughout the pandemic but will impact operating costs without question, say researchers.
“As we speak, consumers are discovering just how good or how bad their local c-stores are,” Dhillon says. ‘They are making an assessment that will drive their future behaviour. If you are a retailer that has underinvested in your environment and offer, in the immediate future you will need to invest in order to survive, or alternatively, shut the doors and find a new way to put food on your table. If you are a retailer that has retained custom and loyalty you will still need to invest because the supermarkets are about to try and steal as much of your custom as possible – that’s the reality.”
Supply chain
Traditional routes to market could be disintermediated but new collaborative models will emerge providing retailers with better guidance, advice and flexibility, the report suggests.
Annan envisages symbol group wholesalers working together on a platform for proprietary products, for example. Centrally controlled business models may also evolve to offer greater retailer flexibility. Retailers may discover new, local suppliers. B2B strategies will emerge and foodservice operators will sell directory to consumers, he adds.
Forward thinking and bold wholesalers and suppliers will thrive; narrow thinking and fainthearted wholesalers and suppliers will flounder.
The report’s authors argue there is an opportunity to integrate local food service opportunities, e.g. butchery, bakery, green grocery into the supply chain and take on board the systems and processes that need to be put in place to guarantee safety. “There’s an opportunity to consolidate those supply chains if you are a forward thinking wholesaler,” Dhillon claims.
Annan and Dhillon maintain there’s a significant opportunity for suppliers to provide timely category management support and advice during the ongoing pandemic. Covid-19 has driven significant changes in category purchasing over the last few weeks with frozen food enjoying serious growth in convenience following years of decline.
“As an operator, I would need guidance to help me shift the balance of ambient, chilled, frozen and BWS through the different phases of Covid-19 and how we exit this,” Dhillon states.
Symbol groups and retail advisors should be able to help retailers make those subtle changes and adapt, say the report’s authors. They should also be able to anticipate the changes in purchasing patterns once social distancing is relaxed, we enter a different phase of the pandemic or move back into lockdown.
“I would want support to make those adjustments according to the different sets of consumer state. Fixed planograms for the next 12 months are utterly useless to retailers,” Dhillon claims.
“Wholesalers have not had to think about that before – the movement of really good advice and guidance and tied in with flexibility,” adds Annan. “The really good wholesalers or brand support centres will need that flexibility to say what retailers will be needing to do for the next four weeks, for example. If not, technology companies could move into this space and disintermediate traditional wholesalers. Those that are really flexible will thrive and those that expect traditional models to return will get disintermediated,” he says.
Technology
Within the space of two short weeks, we have become tech savvy on tools such as Microsoft Teams and Zoom for both business meetings and managing remotely working teams.
Demand for online shopping with home delivery or dedicated pick-up points is tipped to double in the next year; while social distancing, hygiene and customer order fulfilment massively supports a surge in the use of mobile app technologies, the report says.
In-store, meanwhile, retailers are already implementing scan, pay and go technology and adoption is growing. “An acceleration to everything happening on the mobile phone will really ramp up,” Annan predicts.
According to the report, the self-service till is now redundant technology and researchers argue the market for traditional scanning tills will all but disappear in three years.
To date, adoption of smart payment methods has been held back both by independent retailers who have felt unable to afford the leading edge tech and the till kit providers for failing to integrate the technology within their EPoS systems.
“We think that will completely disappear and people will do as much as possible on their phones,” says Annan.
For urban foodvenience stores, scan, pay and go is a no brainer, claim the report’s authors.
“Urban stores who do not have scan, pay and go are either missing a massive opportunity or introducing costs into business that are going prevent them making a profit,” Dhillon says. “A major benefit of scan, pay and go is operational savings. If you are operating on a much tighter margin in an urban environment that is high transit and predominantly food to go – it is perfect for scan, pay and go.”
And the pandemic will accelerate the trend to a cashless society, say the report’s authors. However, while in February the uptake for scan, pay and go apps like Ubamarket was purely convenience driven. Today’s interest is solely down to health and safety.
The future
The report’s authors anticipate experience and fun will return post pandemic but in a very different shape to 2019.
Retailers, foodservice providers and brands will be recognised for their standards of conduct, resilience and customer-first approach, the study says. Many businesses will not survive but those with resilience, who have shown ‘overnight’ flexibility, will do.
“When we emerge from this, the strongest emotional force across the globe will be a desire for things to go back to the way things were. We are going to see that manifest itself in everything,” Dhillon says.
Clearly that won’t be possible due to changed behaviours, the economy and government restrictions, etc. but there will be opportunities in that all human beings will feel a need to go back to the way things were. “Good brands and consumer operators will find a way to tap into that,” he maintains.
Annan agrees and says nostalgia will play a key role too.
“We are humans at the end of day. We do desire things that are familiar,” he says. “We like getting together, whether it’s a team meeting or a chin wag in the pub – these are nostalgic things and many of them will return. They may not return to the same velocity and in a slightly different shape but, from a personal and business perspective, there will be a craving to do that.
“There will be fundamental changes,” he continues. “There will be retailers who will see this as an opportunity and it is an opportunity for the fleet of foot, the socially conscious and the person who is not wedded to their model. Those people will be successful and may be very different people to those who were successful in February.”
Continuing the Conversation
In a live webinar held on 17-Apr-2020, Dan Munford, joined by Patrick Sewell, Managing Director of Sewell on the Go, one of the UK’s most innovative retailers discussed the report with it’s authors, Scott Annan & Dev Dhillon – Watch them continue the conversation on Shop Talk Live.
