Given we are less than 10 weeks away from Brexit and the possible end of the grocery world as we know, writing a post about retailing a decade ahead seems foolhardy (spoiler alert; it is). But bear with me.
Let’s assume that our UK politicians stop behaving like village idiots before March 29th. (yeah, I know). Perhaps for example they could, just for once, heed the voices of those who know what they are talking about. In this case the retailers staring at the destruction of their supply chains with no alternatives being put in place that don’t jeopardise product supply and raise costs and prices, perhaps significantly.
So let’s forget Brexit and assume grocery retailing as normal is to continue. The Asda-Sainsbury merger decision is due in late Spring now, but otherwise let’s assume things are as they are now. Which is not a good thing! Food retailers are in quite a lot of difficulty; not across the board but in many cases. There is a sense that the “legacy” retailers need reviving. The question is how?
I recently read a December 2018 report by McKinsey on Reviving Grocery Retail (in the UK and the US). To some extent it covered known ground, but it did it quite succinctly.
McKinsey note that the mainstream grocery retailers have been in an era of value destruction brought on by changing consumer habits and preferences, the emergence of aggressive competitors and of ecosystems (Amazon, Alibaba) and the onslaught of new technologies. They recognise such trends are often present but point to the sheer pace and intensity of their interactions at this current time.
For McKinsey there are six areas where legacy mainstream retailers can fight back:
- Define a distinctive value proposition; convenience, inspiration, value for money
- Shape your ecosystem – and either go big or get out
- Put technology to work in every part of the value chain
- Win back lunch and dinner
- Rethink all of your real estate
- Innovate ten time faster.
Again, to a degree, there is nothing that new here, but instead it is the combination of these that is critical. These six areas are really responses to the three drivers mentioned earlier. And it would seem that for long-standing retailers it is much harder to adjust than for new and more focused retailers.
So what we seem locked into in the UK is a downward spiral of cost-cutting. Where Tesco and its delicatessens and fish/meat counters being cut back and indeed the whole rationale for the Asda/Sainsbury merger. We have endured this cutting over quite a number of years now. Yet after all of this can we really say that any of our ‘leading’ food retailers has yet made real inroads to the competition or to these six imperatives? To some extent they are still in the denial game and playing the tunes of the new competition.
Are any of them inspiring, truly convenient for consumers and with innovation for the customer at their heart (and innovation which actually helps the customer rather than being for technology or cost cutting sake)? I struggle to see where? Even on real estate and the store portfolio where there has perhaps been the the most movement, has this been clear or focused enough yet? Or simply rather serendipitous?
There is a long way to go, both in terms of the actions needed by the leading players and in the freedom of action currently allowed to the discounters and others. That’s why ten years ahead is foolhardy – we might just be at the tipping point for radical reinvention. But only if we have the retailers able to grasp the existential threat they are under.
Now we just have to get out from under the other existential threat of Brexit and the harm it potentially can do.