The re-balancing retail landscape of 2022 will continue to shift through 2023 as financially tested consumers change how and where they shop. But the shift will be somewhat different to 2022 and will play out amidst challenging negotiations between retailers and manufacturers.
Two clear trends have been playing out. The first is shoppers taking steps to manage their budgets, including broadening the range of stores they visit, with the discount grocers Aldi and Lidl benefiting. The second is a shift to buying even more own label goods since they generally ring up cheaper than their branded equivalents.
In September, Aldi took its place for the first time as Britain’s fourth-largest supermarket. Lidl is close behind and, like Aldi, continues to expand its footprint of stores. Both are outstripping others in their growth rate.
In a fiercely competitive sector, traditional supermarkets are reacting to make sure they’re seen to acknowledge the challenges consumers are facing and offer the best value, in particular by expanding their own label ranges.
Their efforts seem to be well received by consumers, with sales of the very cheapest value own label products up by a third in recent months, with nearly one in three baskets in the traditional supermarkets containing a value own label line.
But the world won’t stand still, and the dynamics of the in-store range alongside store choices will play loud and large. A slight easing of inflation, particularly food inflation, expected in the first half of 2023 will lead to some slowdowns in the growth rate of the discounters. A pullback on new store openings is also inevitable.
In the short term, discounters will likely continue seeing more shoppers in their stores. As a consequence, these shoppers will be forced to go to more than one store for their regular shopping trips due to the discounters' business model that relies on a limited product range and small offerings of household name-brand goods.
This dynamic of shoppers going to discounters in larger numbers and needing to shop elsewhere will continue to plague decision-making processes for brands trying to plan which stores are best for their products and at what price. The inevitable question for brands is whether they should push product listings aggressively with the discounters due to fears of impacting negotiations with other retail groups.
No matter the potential for friction, for brands, it is typically beneficial to be stocked by discounters for sales and reaching shoppers. It will continue to be a nuanced conversation between retailers and brands and speaks to a need for more options in pack sizes and variants to be offered to manage products across increasingly diverse retail channels. It’s easy to say brands should be in discounters, but with what offering is the much harder question to answer. In most cases, avoiding the question is unlikely to grow the business or please consumers. A related balancing act for retailers who are not discounters is finding ways to keep customers in their stores with more compelling choices as the weight of rising grocery price inflation sends some towards Aldi and Lidl more often.
It also won’t be a one-size-fits-all proposition. Value retailers might assume they should only focus on struggling shoppers and premium retailers on the more comfortable. But the data shows something quite different. Just because someone is historically more affluent and likely to have affinities to outlets catering more directly to them, retailers like Ocado or Waitrose, it doesn’t mean those shoppers don’t have financial pressures that need to be addressed.
There is also a need to look beyond the supermarket. The dynamics of out-of-home spend are critical to incorporate into strategies. For example, restaurant meals may be “traded in” for premium ready meals from the supermarket. This kind of downtrading is likely to persist in the coming months and is one of many similar opportunities that need to be understood if revenue shortfalls elsewhere in the portfolio or store are to be addressed.
Fresh foods, that often carry high profit margins, may also see more interest from shoppers as they look for ingredients for more gourmet cooking at home rather than dining out.
