Nick Martin, Senior Vice President Northern Europe, Trace One.
A stagnant economy and changes in consumer habits are having a profound effect on British retailers: already 2013 looks set to contain a number of high street casualties. The continuing pressure on consumers' spending power has also resulted in intense competition between grocery retailers. As part of this, retailers must constantly evolve what is on the shelf in order to maintain customer loyalty. This drive is responsible for the emergence of several key trends for retailers looking to attract customers and help profit margins, including the introduction of exclusive brands; new packaging sizes; prioritising quality products over budget lines; and the rejuvenation of ready-to-eat meals.
On the Shelf: Brands v. Private Labels
In retail, brands are thought to help revitalise sales, attract more and new shoppers, increase those shoppers' average spend and make the retailer become a one-stop shopping destination. Increasingly we are seeing retailers sacrifice some of the independence that comes with private label products in order to appeal to a wider range of shoppers. These two contrary impulses can often be combined by retailers introducing exclusive brands which they see as a key way of differentiating themselves. For example, Tesco adding the premium dairy range Yum to be sold exclusively through its stores.
However for shoppers, exclusive brands cannot always be recognised or clearly linked to a specific retailer, and in the long run this can potentially divert sales away from existing private label products. Retailers also have less control over the production of exclusive manufacturer brands compared to their private label equivalents: because of this, balancing the need to maintain profits with providing more choice will be key in 2013.
In 2013 the pressure on household budgets will see consumers increasingly choose between larger and smaller pack sizes to economise. Buying bigger packs may be economically reasonable in the long-term, but more and more households may only be able to cover their current needs, making them save money in the short-term by choosing smaller product versions. In addition to smaller budgets, other trends driving the trend for smaller packaging include greater customer awareness of food wastage; calorie intake; and the emergence of smaller stores designed for convenience.
This trend brings both advantages and disadvantages for retailers. While small products need less space on the shelf and leave room for a broader variety of products to be displayed, they also increase the complexity and handling required prior to the launch. As such, retailers will need to rely on thorough market research and in-depth information on their customers to find the most appropriate pack sizes.
Quality Above All Else
Instead of continuing to focus on the lowest possible prices for economy lines, retailers have begun to increase value for money to differentiate and outperform competitors. One after another, UK grocers have revamped their existing ranges, or introduced new economy lines focusing on quality products: the main point of emphasis being nutritional value, natural ingredients and highlighting domestic and local sourcing.
Heading into 2013, we are also likely to see the rejuvenation of the convenience sector, as these stores go beyond satisfying the demand for quick and easily consumable foods and start to cater for more sophisticated shoppers. Combining different features has become a major trend for these stores, achieved through offering more ethnic convenience food, ready-to-eat meals for families or sophisticated options for couples. This in turn paves the way for development of some potentially lucrative own label brands emerging in this sector.
Mastering the Smart Approach
So far this year grocery retailers have already reported reduced profit margins, meaning the fight to attract new customers and ensure loyalty is going to be fierce. Retailers will need to be innovative in their approach and use of brands, packaging sizes, quality and convenience. To do this they will need to continuously analyse the market, emerging trends and competitors to find parallels and niche areas for innovation. In order to survive grocery retailers have to be able to master these complexities.