After the tumultuous year that was 2020, what can we expect in the grocery sector in the year ahead? Across two articles I will look at trends impacting shoppers and retailers. In this first article, I will consider the pressures and issues being felt by shoppers.
1. EU Exit: deal adds to cost pressures
It was a nail-biting ride, but the signing of the Trade and Co-operation Agreement on Christmas Eve provides the sector with a much better outcome than the no deal scenario that many feared. The deal means that there will not be tariffs and quotas on qualifying or “originating” food and drink traded between the EU and the UK. Without a deal, new tariffs would have added significantly to prices for imported goods.
Tesco suggested average food prices could have risen by up to 5%. That said, no deal, however favourable, could replicate the trade benefits of being inside the EU. New border procedures and the requirement to prove that goods have been locally produced to qualify for tariff-free treatment will add significantly to business costs and put upward pressure on retail prices, fueling the drive for further cost savings. The deal certainly isn’t business as usual.
2. Recession: a polarising impact across households
With lockdown restrictions expected to be eased, what will be the impact on grocery spending as shoppers regain their freedoms? As government relief schemes are scaled back, unemployment is certain to rise. The UK workforce is already contracting, with 1 million fewer jobs than this time last year, and the losses are bound to increase as government support schemes are wound down. As in the Credit Crunch of 2008, the impact is being felt most by young adults and the lower-paid workers - those with the weakest financial resources.
For wealthier households, the position is typically very different. With jobs switching to working from home and outgoings greatly reduced, many have built up substantial savings over the last year. The challenge for food retailers will now be to step up communication on value to reach out to those on limited budgets while also providing inspiration for the more affluent to continue their higher levels of grocery spending when the foodservice sector reopens.
3. Changing shopping priorities: retailers update their strategies
Recent initiatives at Sainsbury’s illustrate this need to inspire shoppers while also competing harder on value. Last week, it launched its own Aldi Price Match to strengthen its appeal with price sensitive customers, building on a steady drive over the last few years to become more price competitive on key lines. At the same time, it has also pledged to triple its number of new product launches and speed up its innovation process to provide more choice for shoppers on the shelf. At Tesco, the focus is on nurturing the loyalty of its core shoppers by concentrating the best promotions through its Clubcard Prices scheme and building on the value improvements it has already delivered.
So while 2021 will bring a degree of normalisation to the sector after the extreme challenges of last year, changes to shopping habits and budgets and retailers’ ways of working will be an enduring legacy of COVID-19.
WEBINAR: EU-UK transition – latest moves
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