What lies ahead for the grocery sector?

Changing consumer behaviour

The RTT believes that the real danger to the grocers is the steady decline of the weekly shop, which could render out of town hypermarkets obsolete.

Nick Bubb of Zeus Capital said: “The way we buy our groceries has changed, with many consumers favouring a bulk online order for key staples and supplementing this with visits to convenience stores during the week for fresh goods. This has shifted the emphasis away from hypermarkets and spells trouble for the mainstream grocers.“

The shift to convenience shopping has also been driven by the industry itself, rather than consumer demand, after grocers opted to open smaller high street sites to quickly gain a foothold in towns where they were underrepresented. Consumers have embraced convenience stores and ‘top up shopping’ so enthusiastically that the grocers have seen sales in their large format stores decline, cannibalised by smaller stores on the high street.

What’s next for the sector?

The modern consumer wants a cheap online shopping service, with long sell-by dates and no substitutions. This is the golden chalice of grocery, but the cost of delivery is a major barrier to grocers and consumers. The RTT suggests that consumers may embrace ‘drive through’ shopping, where consumers can quickly pick up their preordered shopping at a location convenient to them.

However, the economic reality is that it’s not in the interests of the big four to move quicker towards on-line sales and home delivery, irrespective of whether the demand is there. 

The arrival of the online rival

Price alone or a competitive environment will not reshape the grocery sector whilst all the players keep using similar formats. Instead, a new entrant could change the balance. This could take the form of a new online only retailer like Amazon, or price comparison websites playing a greater role in the market. 

“It’s possible we could see third party companies pick products from different grocers to guarantee the cheapest weekly shop,” said James Knightley of ING. “As a result, we may see grocers focus more on their own branded products, which are more difficult to compare.“

But such third party organisations could boost opportunities for smaller retailers offering locally sourced food or ethically produced items. Conceivably, we could see the manufacturer of the product or the farmer sell through Amazon itself, further diminishing the need for a traditional supermarket. 

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