Developments in food retailing

These are not happy times for many food retailers. In many major economies, notably France and the UK, the supermarket operators are losing market share. The reasons vary from market to market and, inevitably, they are most vulnerable in markets where they are most mature.

We have seen a move of population into inner cities in many countries and the growth in the hard discounters. There is a tendency, especially for the young, to eat out more and not to do a big weekly shop

This decline is not universal and countries where the supermarket / hypermarket sector is less well developed, such as Italy or Spain, have continued to see their large stores gain share.

The decline, or fear of it, has been one of the stimuli for what seems to be an increase in innovation in the sector and we think that some recent examples are worth bringing together here.

Growth in organics

No-one would suggest that organics are going to take over the retail sector, but they have their place and there is a part of the population that thinks they are very important. So we have seen a number of retailers increasing their emphasis on them.

All the market leaders have at least some organic products, but Carrefour goes further. It has organic products under the Bio brand in its stores and has launched its Bio chain of organic food shops as well. It has recently rolled the concept out to Spain.

Sonae the number two food retailer in Portugal, through its Modelo and Continente chains, is also making a play for the sector. Sonae bought Go Well recently and has just added the much bigger Brio chain which has been expanding fast.

Organics are an important niche business in food retailing and even if they are not a major part of the business, they do present opportunities for growth. We have highlighted these trends before, notably in the recent Analyst Insight, "Continued strong growth in organics in France" in April 2017.

Better service

Another area to feature recently has been better service and, in particular, ways to improve the checkout experience.

Amazon developed its Amazon Go store and opened its first in Seattle. At present it is only open to Amazon staff and it seems that Amazon is having some initial teething problems. The concept is that it should be open only to Prime members. They will be recognised as they enter the store – presumably they will have a card which can be scanned – and as they leave the store their basket will be scanned using RFID technology and their Prime account automatically debited. The idea is neat. There are obvious pitfalls – how do you keep out the non-Prime members, for example.

This is the sort of ground breaking idea we have come to expect from Amazon. It leapfrogs the competition and it further builds on Prime, which is at the centre of the group’s long term strategy. Amazon is also leapfrogging older ideas which generally rely on some sort of self scanning. Amazon’s concept would do away with the need to check customers’ baskets because every product would be captured by the RFID technology.

Monoprix is experimenting with a No Cash store under the Monop’Go fascia. It is using NFC technology (Near field communication, more familiar from Android or Apple Pay). Customers will be able to “scan their products using their mobile phone and then their account will be automatically debited. The idea is interesting, but clunky when compared with Amazon’s and there will have to be random basket checks because such a system is wide open to being avoided. In effect this is self-scanning using ones mobile phone. It’s an old idea being revived in new way.

Amazon’s is the really interesting idea – if it can be made to work.

What about the discounters?

Aldi and Lidl have tended not to be innovators in the way that Amazon and Monoprix are being. Central to the discounter concept is that costs should be kept to an absolute minimum, so Aldi ad Lidl tend to follow rather than lead. In recent years they have achieved dramatic growth by moving towards the middle ground of food retailing, but in doing so they have risked undermining their cost advantage. But it is in the nature of discounting that their stores achieve maturity quickly. Having achieved a step change by expanding their offer, where can they go next?

So Aldi is experimenting with a pop-up restaurant in a store in Köln. The menu will change frequently and it will be based on products available in-store. Done well it could be a great piece of marketing for the business. But at present it is just an experiment.

Where next?

Food retailing is and always will be highly competitive. Demand for food is mature – on the whole, people have enough to eat. So food retailing can be seen as a constant battle to gain an advantage. We’re not talking about price, because a cut in prices can be matched almost instantaneously by the competition. What we are seeing in all these examples is retailers trying to gain an advantage through better quality products, better service and, even, better marketing.

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