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Source: Waitrose

It will be very hard for brands and non-discounter retailers to compete on price alone in a post-Covid recession

The Covid-19 lockdown has had huge implications for our industry. Grocery take-home sales are up by nearly 20%. On the go and dining out have been devastated. Retailers and suppliers have scrambled to adjust, on the whole impressively.

Now thoughts are turning to what society might look like as and when we emerge from lockdown. What are the business implications?

Some widespread predictions are dubious. Will we really see a lasting surge in demand for local convenience store shopping? Will there really be a sustained decrease in the proportion of grocery volume sold on deal? But other predictions are more sound. What are they, and what might they mean for companies?

First, a recession is coming. The chancellor has again this week warned of this. A recession will be a further tailwind for discounters – Aldi, Lidl, B&M, Home Bargains and the rest. For brands and non-discounter retailers, it will be very hard to compete on price alone. Being able to convince consumers there is a meaningful point of difference will become even more important. Recession heaps further pressure on any brand or retailer still expecting to charge significantly more for something broadly the same.

Second, people will shop online for groceries more often. Hopefully, the prime reason that has driven them online in lockdown (safety) will have receded in importance. But, having learnt their way around the technology and process, these new converts (often older people) will surely choose to use it going forward, at least sometimes.

For retailers, this creates a challenge. It is harder to make money online, but if they don’t deliver well and affordably to shoppers, Amazon lurks ominously in the background. For suppliers, there are also big questions: where to play? Which of the many online players are worth investing in? Is DTC a viable option? And then, how to win? Shopper marketing online is a significantly different discipline, requiring different skills and experience, to the equivalent in-store.

Finally, consumers will spend more time at home during the day. Working from home has hit a tipping point, demonstrably viable and efficient, normalised and widely acceptable. Just look at the use of Teams and Zoom in our industry now. Beyond that, sadly, fewer people will have jobs to leave home for.

All of this is further bad news for food on the go and eating out, but it does have a silver lining for categories serving breakfast at home, snacking at home (particularly healthy) and, above all, quick lunch at home. These are not high-value occasions compared to out-of-home equivalents, but they are incremental to take-home grocery.

Future-gazing can be a fool’s game. But there are things we can be confident about. A recession is coming; there will be more grocery shopping online; people will spend more time at home. How we plan and respond to these changes will be critical to our success in the coming years.