UK Retail Briefing - March 2020
Analyst Comment: Ongoing Impact of COVID-19 on the Grocery Retail Sector
 
The outbreak of COVID-19 is unprecedented and its impact on the retail sector has been profound. As early as late February retailers were bracing themselves for a spike in demand and even ahead of the measures introduced this week regarding social isolation, some 10% of shoppers had stockpiled goods according to Mintel’s latest data.

Whilst this is a minority of consumers such a spike is enough to place significant strain on retailer’s stock and logistic networks and of course causes unavailability. Initially these were small but pictures shared on social media and with the news interest around the issue naturally others consider the same behaviour and it becomes a self-fulfilling prophecy.

The out-of-stocks initially were confined to a select few categories, cleaning products and toilet rolls were the first to show the impact, but as stockpiling trend as grown other categories have faced pressure, packaged bread and chicken are currently in high demand. What is notable about this, is it is showing the same pattern our colleagues in China observed in that market during the outbreak, with staples and ambient in high demand in the early days of the outbreak/lockdown.

However as the situation developed, and individuals were forced to spend longer in doors, the focus became on health and fresh categories. We are beginning to see this and this will be a key pressure as the situation in the UK develops further.

The current impact has been indiscriminate, affect the largest chain and local businesses equally with all struggling to fulfil the heightened demand. However for smaller retailers the impact of a rapid growth in demand is far greater, for many supply networks are not as developed and deliveries of new stock not as frequent. This has been further magnified by consumers, either by choice or under advice, staying closer to home and shopping more locally.

Of course online has seen demand spike with the reasons being two-fold, firstly due to some consumers not wanted to go into store and because it is a channel that best supports big-basket demand. All have seen demand skyrocket to the point now where Ocado is forced to make consumers queue and/or take its site down for periods as it processes demand.

Whilst arguably a little late, the enforcing of limits on select lines was a required step by retailers. In the same way experts have talked about the need to ‘flatten the curve’ regarding the outbreak, this is what retailers are having to do in terms of demand to ensure supply chains have enough time to react and crucially all can have access to the products they need. This needs to be supported by a sustained campaign of calming shoppers, clearly the continued ‘stockpiling’ is coming from a lack of trust that products will be available long-term and retailers need to reinforce the point that there is enough to support the nation in this difficult time.

We have also seen retailers be forced to react to the differing stages of isolation the population are currently experiencing. With the impact of the virus stronger on the over 70s, and the advice for them to stay at home, there has been a need for dedicated shopping hours and priority delivery slots for this group whilst younger shoppers are now being advice, where possible, to not shop online and come into store. This is only the first week of the dedicated shopping hours and there are clearly teething problems, in particularly the long queues some are experiencing which is problematic as it gathers those at risk in one place for an extended period. However the approach, treating customers with different risk in differing manners, is correct and will be finessed as we move forward.

To date the vast majority of the impact of the sector has been ‘preparation driven’ but we now move into a more difficult stage. As more consumers, either through choice or through requirement, isolate then there will need to be new thinking about how to ensure these shoppers have access to food and drink. Online will play its part, but as it currently accounts for just 7.0% of spending in the sector, it will need massive investment and man-power, hence the requirement drive from the major players, to fulfil even a quarter of demand in the sector via delivery. Stores will of course have to play their part and as we saw in China the introduction of ‘contact-free’ shopping will be important, potential to the extremes we saw in China were orders were left in dedicated ‘pick-up’ zones outside stores.

As concern grows there will be a need for retailers to reassure shoppers that staff who are fit and healthy. Again in China we saw orders come with the temperature reading of delivery driver and staff who packed orders, and such moves, whilst not fool proof, can add reassurance to shoppers.