Raising prices to mask declining sales volumes is “no longer a sustainable strategy”, AlixPartners has briefed business leaders at the World Retail Congress.
Improving volumes should be retail leaders’ “top priority”, according to the consultancy’s report, published this morning.
“The low-margin economics of retail demand genuine volume growth,” AlixPartners said.
Since the start of the pandemic, the value of global sales has risen far faster than volumes, masking structural weakness in many retailers’ balance sheets, according to the consultancy.
In the UK, the difference is especially pronounced, with sales values up around 25% compared with a low single-digit rise in volumes over the past six years.
This inflation-driven value growth could push Europe toward a “lost decade for volume growth” unless decisive action is taken.
To reinvigorate sales volumes, AlixPartners global retail growth leader Paul Martin recommended grocers “focus on the controllable”.
“For many grocers, the starting point is fixing the basics, such as store locations, assortment, pricing, promotion effectiveness and addressing legacy tech and data debt.”
Embedding data in pricing and promotion decisions is a key first step, according to the report, with AI-driven pricing and promotions vital to boosting the shop’s perceived value for consumers. Martin pointed to Tesco, which attributes about 82% of its UK sales to Clubcard members.
“To take up market share, grocers need to be better operators and differentiate from the competition – they can do this by driving customer appeal,” he said.
He added that volumes were key in grocery businesses’ asset-heavy operating models.
“Grocery retail is an asset-heavy industry – often requiring warehouses, HGVs and stores – and stockturn is a key metric. That means the more stock you put through your ecosystem, and the faster you do it, the better you should perform.
“Finally, if you are a successful grocery retailer with a strong balance sheet, you can and should place some big bets – and embrace the current challenging trading environment.”
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