The Covid-19 pandemic and its associated lockdowns and changes to consumer sentiment have had an obvious impact on all retail sectors. Some segments, like CBD stores and dine-in restaurants, have experienced extremely challenging times and still have not fully recovered. Others, like homewares, have experienced strong and sustained growth.
The grocery sector has had a mixed experience. The sector experienced a massive spike in sales at the start of the pandemic, partly fueled by panic buying. This was followed by almost equally large declines as many consumers had over-stocked their pantries. Since then, the sector has remained at high levels relative to pre-Covid, driven by many consumers still working from home or avoiding restaurants. Through this rollercoaster, grocery retailers have had to enforce changing restrictions, which has, unfortunately, led to an increase in customer abuse.
These shifts have given rise to an evolution in grocery store formats. In some ways, the changes have been a continuation of existing trends. In others, they appear to be due to the experiences of the last few years. Below, I explore some of the major shifts and consider what could be coming next.
Blurring boundaries
Even before Covid hit, the nature of ‘grocery stores’ or ‘supermarkets’ was evolving. Supermarkets were exploring different product categories and services in-store, culminating in Coles partnering with local cafes while Woolworths partnered with UberEats. At the same time, convenience stores were increasing their focus on fresh food in-store, with some evolving into mini-supermarkets – occasionally as part of a partnership with the major players. The result is that the boundaries for grocery-store formats have blurred, with increasingly ambiguous distinctions being drawn.
A recent academic study1 included a large-scale review to summarise the existing academic research into grocery-store formats. One of the major challenges the research highlighted is that definitions of different formats are ambiguous and often inconsistent across studies and contexts. For example, what’s the difference between a smaller format ‘supermarket’ and a larger format ‘convenience store’ if both focus on grab-and-go or ready-made meals, with some fresh product on the side? To get around this challenge, many studies simply focus on store size, which obviously ignores much in emerging trends about how store space is used. Two stores may be the same size but one may be used primarily as a fulfilment centre for click-and-collect or home deliveries, while the other may be a bustling fresh food market with on-site restaurants.
The classifications will only get more ambiguous as the concepts continue to blur and merge. As this happens, it will be interesting to consider how this could affect internal and competitive benchmarking. As each individual store becomes more distinct in format, how will retailers compare them? As a basketball fan, it reminds me of the challenges of picking all-star teams now as ‘positionless’ basketball becomes more popular. Are categorical labels still needed and relevant? Or can we embrace the way formats are blending and celebrate the opportunities this presents?
Click-and-collect and home deliveries
One of the most obvious impacts of the Covid pandemic has been the increased focus on click-and-collect and home deliveries. Australian Bureau of Statistics figures show that online accounted for 5.8 per cent of all sales in the food sector in January 2022, lower than the peak of 7.4 per cent in August 2021 but still more than double the proportion in January 2020.
Two main factors drove this adoption: lockdowns and isolation requirements, and product shortages. In many cases, these factors forced consumers to trial online grocery orders for the first time. I have told the story many times of how temporary shortages and others panic buying led our family to order toilet paper online from Who Gives a Crap (WGAC). As a family with young kids, we had a legitimate need but faced challenges finding stock and judgement from other shoppers if we were lucky enough to snare a big pack. We trialled WGAC as an alternative, enjoyed the experience, and have never gone back.
Our experience is in line with a notable academic study2 on how consumers’ channel choices evolve over time. The idea is that when consumers are faced with a new context or purchase channel, we start in a ‘trial’ phase. In this phase, we explore different options and are quite open to influence from external factors, such as marketing activities. Eventually, we move to a ‘post-trial’ phase, in which we develop relatively strong preferences and are less susceptible to influence. Covid and lockdowns have had the fascinating effect of forcing many consumers out of their established ‘post-trial’ behaviours and into a new trial phase using online or click-and-collect offers. For those like me, who had a good experience, the behaviour could stick and become a permanent adaptation. Others may have a bad experience and revert to their previous behaviour, or even try something else completely new.
Either way, we must accept that some (maybe many) consumers will permanently change their behaviour, even if just to small or moderate degrees. Startups have emerged to take advantage of this opportunity. In August last year, I was quoted alongside Professor Gary Mortimer in a piece by Inside Retail exploring grocery startups like Geezy Go, Milkrun, and Send. We were both asked if they could pose a threat to established players. I said yes and Gary said no. Since then, Milkrun has raised over $100 million from investors and spread from Sydney to Melbourne, so at least a few people think I was right. In fairness, Gary was right, too, as the major supermarkets have drastically increased their own investments in delivery and click-and-collect, protecting themselves from losing too many customers to these startups.
Even still, as the sector becomes more fragmented (something I’ve been writing about and predicting for some time) the space for these emerging formats seems to be increasing. The super-local hyper-convenience of startups like Milkrun may not put Coles or Woolworths out of business, but it is proving to be a popular offer among consumers. I’m excited to see how these startups keep pushing the boundaries, and how the major players innovate to keep up.
Tech-enabled stores
Speaking of investments from major supermarkets due to online shopping, the increase in ‘dark stores’ is another important trend. Gary and I, along with other eminent retail academics, were asked to explore the trend for an article that originally appeared in The Conversation3 in mid 2020. We discussed how major supermarkets were starting to ramp up their dark-store fulfilment offers to cope with growing online demands. Since then, we’ve seen the investment continue. That said, a trip during the day to any supermarket will still show lots of manual pickers walking the aisles to fulfil click-and-collect orders, suggesting work is still under way to optimise online ordering and fulfilment.
But the technology in grocery stores is not limited to click-and-collect and online orders. We’ve seen large investments in a variety of ‘scan and go’ technologies, following the lead from Amazon’s ‘just walk out’ stores. Even Aldi has tested the idea in the UK, in a move that surprised some analysts and many consumers. The challenge with this technology, like any, is that it can divide consumers. While for some it may present a convenient way to shop, for others it seems invasive and will be avoided at all costs. Either way, we’ll definitely continue to see more technology in-store in the future.
Where to from here?
As much impact as Covid has had, we are already starting to see signs of consumer behaviour returning to some semblance of ‘normal’. Online sales consistently fell towards the end of 2021, and did so again in real-terms in January – although they were up when seasonally adjusted. Particularly in the food sector, online sales appear to have stabilised, if not dropped slightly in recent months. Yet there will be lasting impacts, if for no other reason than the investments retailers have made in formats, fulfilments, and in-store technologies.
As in many sectors, formats in grocery stores are likely to become increasingly hard to define. This could ultimately be a good thing if these blurred boundaries are used to tailor stores to local community needs and preferences. Similarly, technological advancements could improve the experience for consumers, so long as retailers still cater for those who want a simpler, more human, experience. Either way, the growing support for local startups should force big players to continue to innovate – hopefully for the benefit of consumers and the sector as a whole.
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