The disruption of the UK’s traditional grocery and supermarket scene by online providers looks to be accelerating, with Amazon now offering free grocery delivery to millions of customers in a massive expansion of the company's fresh food service. Traditional grocery stores are evidently feeling the heat, with Tesco making a follow-up announcement offering free delivery to members of its Clubcard Plus loyalty scheme in an effort to take on digital competitors. Meanwhile, Marks & Spencer has recently become the new supermarket partner of Ocado – considered to be the next stage of its transformation to keep up with competitors.
On top of this, consumer demands are constantly shifting. While some years ago price was a top concern for customers, the ability to purchase environmentally friendly and sustainable produce is becoming much more important in consumer decisions when it comes to choosing where to get their grocery shopping. Alongside this, convenience is even more of a priority, as we have all come to expect as near to immediate availability of whatever and whenever we desire. As such, we have been happy to pay a small premium to receive this for some time, with research showing that even in 2017, consumers would pay 11 percent more for each added layer of convenience in the food chain, whether that’s for online grocery delivery or take away.
So as traditional supermarkets look to keep up with rapid changes in consumer behavior and expectations, how can they also compete against the digital natives?
The digital competition
Until recently, Amazon held off on expanding fully into the UK market, with Fresh only operating in London and the home counties. Currently, Amazon Fresh only holds 3 percent of the market share compared to Ocado’s 14 percent and Tesco’s 30 percent. However, with the difficulties and restrictions placed on customers across all age groups due to the pandemic and lockdown, many people have been forced to turn to online grocery shopping due to being unable to visit supermarkets in person.
This includes senior citizens, who have traditionally shunned online shopping in favor of traditional grocers, butchers and local convenience stores. However, during lockdown, traditional supermarkets introduced initiatives to reserve delivery slots for the elderly and key workers. Despite putting many measures in place to increase capacity, the unprecedented demand meant many people had to find alternative ways to shop for their groceries. The knock-on impact of the pandemic could lead to a permanent change in shopping habits. Firstly, many senior citizens are likely to have become accustomed to the convenience of online shopping, and now may not want to switch back to in-store visits – especially as a Covid-19 vaccine is still in development. Secondly, it could also accelerate how people from other age groups explore alternatives, such as Amazon Fresh, moving them away from the traditional supermarkets, many of which did not have the capacity to meet their needs during lockdown.
This period has certainly amplified the importance of digital and the necessity for the industry to provide a secure, reliable, accessible and user-friendly online offering for customers, with a wide variety of products to choose from, a good customer experience and speedy delivery service. After all, online competitors provide so much more than just groceries. Not only can customers get easy access to thousands, if not millions of other products beyond groceries, they can also benefit from other perks as part of subscription memberships, including TV shows and videos.
Changing consumer habits
In addition to online competition, while historically supermarkets have sought to compete on price, the introduction of price matching and discount stores such as Aldi and Lidl, alongside an increasing demand from customers for quality produce, has meant the major supermarkets have had to work even harder to entice customers to shop with them.
Part of this is a growing demand for goods that are produced and sourced sustainably and ethically. Awareness of these issues has grown to such an extent that soon, beyond just offering environmentally-friendly marketing campaigns for consumers to buy into, it will in fact be a legal requirement for supermarkets to be able to prove that their produce does not contain certain ingredients such as palm oil, in an attempt to save tropical rainforests.
Three ways traditional supermarkets can keep up
There are two big obstacles to tackle here: digital competition, and changing consumer demands, the solutions to which go hand in hand and heavily rely on the introduction of modern technology. Therefore, there are three main areas traditional supermarkets need to address, including:
- Transparent and effective supply chains: In order to meet consumer expectations, supermarkets need to take steps to ensure their supply chains do not exploit the environment or the people that work in them. This requires the ability to offer transparency on how products are farmed and the way in which workers are treated. There are many ways this can be done, for example, some supermarkets such as Morrisons have purchased their own farming land. Furthermore, supermarkets that are looking at scaling up their online offerings need to have a supply chain that can keep pace, otherwise all online efforts are futile. With this in mind, rather than using huge, expensive, out-of- town warehouse sites, supermarkets could consider converting smaller, local retail stores into ‘dark stores’ exclusively for storage, which can then ensure faster local deliveries.
- Modernizing back-end technology: As with many industries, incumbent supermarkets, who have been around for many years, have had no choice but to build systems on top of their legacy technology. As a result, although most have a competitive online presence, they are still running on systems that have to compete with those of digital natives. These new competitors have been able to build their systems from the ground up using the best-in-class modern technologies more suited to the digital world. This means traditional supermarkets have to work much harder to create a connected customer experience as systems are often siloed. Modernizing these systems should be a top priority, and a big part of this will be completing the transition to the cloud to become cloud native.
- Creating a better in-store experience: Many more people are now aware of and accustomed to the ease and convenience of online shopping. However, visiting physical stores will for many remain important, especially once the hygiene risks reduce and the growth rate of the Coronavirus has lessened. This is because, for many people, grocery shopping is enjoyable, for example because they want and are able to test fresh produce before buying it. Incumbent grocers therefore need to use their physical stores to their advantage by creating a better in-store experience. This might involve implementing scan and go shopping, which offers a convenient way to shop without customers having to come into contact with staff at the checkout. Therefore, when updating their back-end systems, supermarkets need to create not only a good in-store experience, but one that is seamless across both online and in-store. Those that can do both well and to the highest standard will have the best chance at succeeding.
It is not about treading on eggshells, it is about making a path through them
Ultimately, while many of us are starting to return to some kind of normality and retail assistants are seeing greater footfall in store, the way we buy our groceries has permanently changed. A few months ago, digital competitors seemed to pose less of a threat to the incumbents, but the pandemic has greatly benefitted them and given them the opportunity to expand, adding to an increasingly challenging landscape for traditional supermarkets. The traditional supermarkets need to play to their strengths – hard-won and long-term brand loyalty, and the physical in-store experience – but now place modernized technology at the heart of their operations to remain competitive in years to come.
Rohit Gupta, VP and Head of Products and Resources, Europe, Cognizant