The Partners for Growth team of experts met to discuss the impact that the sharp increase in the cost of living is having on convenience retailers. With energy, fuel and food prices rising to unprecedented levels, driving inflation to a 40-year high, the Retail Advisory Panel universally agreed that this presented one of the biggest challenges facing retailers. recent times for retailers.
Ramesh Shingadia, a member of the Retail Advisory Panel, comments: “We as retailers know that many of our customers are really struggling to make ends meet so we need to try to keep prices as low as possible to be competitive. . However, with rising energy costs and price increases putting pressure on margins, retailers will face challenges in doing this, so they will need to look at other ways to adapt their store offerings to help achieve this.” .
Here, we share insights into changing shopper behavior and recommendations from the Retail Advisory Panel to help retailers adapt their businesses to meet changing shopper priorities and the impact of rapidly rising overhead.
What impact has the cost of living increase had?
Preliminary evidence suggests that shoppers are already using coping strategies to deal with price increases in terms of what products they choose, how they consume and where they shop, but Not all buyers are affected in the same way. Research has identified three distinct groups of shoppers, around 22% of whom are now struggling to make ends meet.1 – an increase of 6% from November 2021.
|COMFORTABLE (33% of the population)||MANAGER (43% of the population)||STRUGGLING (22% of the population)|
Buyers within this category are not overly affected and can still continue shopping without restrictions.
Highest % change in spending year over year -5.5%two
Buyers in this category manage to get by without too many restrictions on their usual products.
Buyers within this category are struggling to make ends meet and have some tough decisions to make in terms of how their funds are allocated.
Younger buyers (<28) are more likely to fall into this category, as are households with children.
As expected, struggling shoppers spend less per trip and less per package and rely more on discount stores and freezer centers, while comfortable shoppers, a group experiencing an 8% decline since November 2021 They rely on supermarkets and online for their purchases. However, the convenience channel, with the second highest penetration and purchase frequency across all formats, is very well positioned to meet everyone’s needs.
Unilever shopper mission research provides new understanding of shopper behavior
In 2021, Unilever conducted extensive shopper mission research, interviewing more than 17,000 shoppers. He found that buyers’ missions had evolved by adopting an understanding of the category mindset, which provided a more comprehensive view of purchasing behavior. It found that shoppers changed mindsets when shopping across different categories, so by understanding a shopper’s mindset, convenience retailers could tailor their product offerings and in-store communication to increase sales.
Unilever Category Director Kat Simpson comments: “While most shoppers across all retail formats do research or inquire before they buy, our study found that convenience shoppers were less likely to see price and promotional information before a purchase. For these buyers, proximity is the key factor as they have a “Needs for Today” mission and mindset. These shoppers have a more experiential mindset than grocery-goers and are more likely to make their decision at the point of purchase, presenting a huge opportunity for convenience retailers to use in-store displays to maximize browsing. the store, highlight the range of products and their sales.”
Simpson adds: “CConvenience stores are also perfectly placed to help the group of distressed shoppers who are most exposed to the cost of living crisis, as fuel costs for your shopping trip are also taken into account when deciding on a retailer to buy. complete your shopping mission.”
Retail advisory panel recommendations for retailers.
According to the Partners for Growth Retail Advisory Panel, retailers should now urgently review their businesses to better serve changing shoppers’ priorities and states of need in the face of rising cost of living. They should also take a close look at the fundamentals of their business and review all costs and pricing to ensure their business is well-positioned to navigate the tough times ahead.
Panel member Ramesh Shingadia comments: “The dramatic increase in energy costs has already caused several retailers to close their stores, so it is imperative that retailers review their businesses now, to see how they can reduce their overhead to help them get through these unprecedented times. . Here we share our Five Point Action Plan, which we urge retailers to review and look to implement in their stores.”
Five Point Action Plan
1. check your range – making sure your offering meets your shoppers’ needs has always been key for a convenience store, but with shoppers’ priorities and need states changing, it’s more important than ever. Keeping an eye on business fundamentals will inform retailers how the cost of living crisis is affecting their stores. Understanding how many shoppers visit the store, how much they are spending, and what they are currently buying (i.e., more value-oriented products or promotional products) will help you identify and weed out slower sellers to provide optimized range to meet customer needs. the clients. priorities
two. Make sure your store communicates value: With energy and fuel costs set to peak this fall, retailers need to make sure their stores clearly communicate value, which will help retain shoppers. This could include:
- Increasing the range of price-marked packages, which helps reassure “distressed” shoppers that they are getting value in store.
- Stock more value-oriented product lines, including a private label range to provide price-sensitive shoppers with more choice.
- Offering a loyalty scheme, to give loyal customers the benefit of even greater value while securing more sales.
3. Play to your convenience strengths – the main reason shoppers come to your store is to fulfill a mission. By tapping into the experiential mindset of convenience shoppers, retailers can make their store a destination for their community and use this to drive incremental impulse purchases. Having created space by optimizing their range, retailers may look to introduce new products and services, such as slush machines, vape stations, deli services, bakeries or butchers, which offer significantly higher margins, to help alleviate pressure on a time when overheads are rising and margins are shrinking.
Panel member Mandeep Singh of Singh’s Premier comments: “We recently introduced a refreshment station, which offers double the margin of traditional soft drinks and has attracted a large number of shoppers looking for a simple, low-cost family gift, at a time. when they can’t afford to go out for a bigger gift. It’s been one of our most popular categories, and when it’s hot out, we’ve had shoppers literally lining up outside the store.”
Four. Keep your margins – With inflation at its highest level in 40 years and current typical energy prices showing a five-fold increase compared to previous years, it is important for retailers to watch the fundamentals of their business and raise their prices to ensure they cover your ever-increasing overhead costs completely. and raise the price, so that they maintain their store’s operating margin. If this is not feasible, then they should look to identify higher margin products or services, which will help them maintain their overall margin.
Spar retailer David Charman comments: “Most convenience retailers have not experienced inflation at these levels before, and this new inflationary climate requires a different mindset for running a retail business than it has in the last 30 years. Reviewing your business fundamentals and pricing regularly is key to gaining a clear understanding of how the cost of living crisis is affecting your business. Passing on price increases to customers is critical to maintaining your margins. Failure to do so could really jeopardize your business.”
5. Ensure good availability on key lines – the panel highlighted the importance of good availability, which is something everyone has had challenges with recently. Their solution was to focus on the best sellers, approach different wholesalers, visit Cash & Carry more often, and look at different vendors, all of which helped them stay stocked with the best-selling lines.
For more information and tips on how to improve your store, visit the Partners for Growth website at www.partnersforgrowth.co.uk
1 Kantar – Worldpanel LinkQ Survey, April 2022
2 Kantar – Worldpanel Total FMCG on April 22