Over the last two months, grocery retail has changed fundamentally, for the short term at least. The in-store experience has evolved as retailers have put social-distancing measures into place. Customer numbers have been limited, flow is being managed and the checkout experience has been transformed.
Ranges have been rationalised to support higher volume items, promotions flexed to simplify processes and put a brake on store traffic, while marketing efforts are focused on at-home opportunities. Online, fulfilment capacity is being scaled up at a rapid pace.
However, as we move through this pandemic, the focus is shifting to the future. What will food retailing look like in a post-COVID-19 world?
Giving you a framework for future business planning
Predicting the future is challenging at any time, but in the current environment, it’s virtually impossible. At IGD we’ve developed 10 hypotheses about the future, identifying how society, shoppers and physical and online food retailing could change. While some are likely to evolve in a more predictable manner than others, due to the degree of change the sector is experiencing, there are many potential outcomes for each.
However, the hypotheses enable suppliers to better understand the priorities of their retail customers. They provide a framework for future business planning and create an opportunity to align around a shared vision of the future.
Society: localising our world
Building a framework that incorporates future societal changes is tough. The issues go beyond food retail. Already we have seen our way of life, whether it be at work, in school or at home with our families, change beyond recognition.
While this pandemic will pass, the expectation is that others will emerge, leaving consumers and businesses on high alert. The rush to globalisation may be reversed as organisations explore the resilience of more localised supply chains. Alert to future business disruptions, securing alternative sources of supply could become a bedrock of risk management.
In the support of ‘local’, the current crisis could lay the foundations for a kinder and more community-orientated society to emerge, with people, business and governments forging new social bonds and friendships. While this could help define a new era for purpose-driven retail, as life returns to normal, could the empathy we have seen over the last few months dissolve away or the unwinding of entrenched global networks be too challenging to achieve?
Shoppers: providing an early signal of change
Shoppers will provide the first indication of how retail will evolve over the longer-term. They can adapt much quicker than society or retailers to the external environment and will provide the signals for businesses to follow. Many of the changes we are already witnessing demonstrate how they could change their behaviours over the coming months, and potentially longer-term.
The scale and scope of business and government-led shutdowns, disruption to global supply chains and record-high unemployment, are clear indicators of the future economic challenges that shoppers will face. While the depth, intensity and duration of an economic slowdown continues to be debated, shoppers are likely to revert to previously established savvy shopping behaviours. These include switching products and retailers to save money, shopping around for the best deals and cooking more from scratch.
The current crisis has also driven almost all out-of-home eating occasions to transfer to the home. While food retailers have gained a proportion of this spend, restaurants and food-to-go operators have innovated with new delivery services and business models. As opening restrictions ease, will shoppers remain financially prudent or will the craving for creative and social experiences enable a quick return to previous consumption patterns?
Retail: adapting for the short and longer-term
The trading environment has already adapted to the Coronavirus pandemic. Many of the changes put in place to support physical distancing are expected to remain, with retailers starting to consider the implications for future store design.
Physical stores will need to be more agile and flexible to accommodate extreme trading cycles. A stronger focus on operational efficiency versus retail theatre could be a legacy of the pandemic. Automation and robotics could be more widely deployed while there could be a gradual withdrawal from high-cost, experiential services.
Online grocery retail is expected to remain at an elevated penetration, relative to pre-crisis levels. Demand through this channel has been unprecedented, and while this has resulted in a less than perfect experience for some, new shoppers have entered and are expected to stay. Retailers are investing in expanding fulfilment capacity and new operators are attracted by the enhanced growth opportunities. However, the profitability of the channel remains a challenge, leading to more automation going forward.
As in the wider retail environment, expect to see structural changes. The economic backdrop will be a challenge for some, creating opportunities for businesses with the financial resources to capitalise. Mergers, acquisitions and business exits may occur with increasing frequency over the short and medium terms.
Uncertainty and volatility will affect our hypotheses
As recent trading updates have indicated, there is a high level of volatility and uncertainty which will drive different outcomes for our hypotheses. As lockdowns ease, businesses re-open and economic activity resumes, will consumers remain wary of mass gatherings? What type of economic slowdown and recovery will we experience? Will savvy shopping behaviour in 2020 be the same as in 2008, when food retailing looked different?
For many retailers, the financial outlook also remains challenging. Many have removed future guidance on sales and profitability. However, this makes business planning more critical than ever.
For many suppliers, the crisis has enhanced ways of working, improved communication and provided a foundation for greater collaboration with their retail customers. Taking the opportunity to build on this deeper level of trust, is one that many suppliers must now seize.
For more on our hypotheses of how Coronavirus (COVID-19) will change FMCG
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