COMMENT In a matter of weeks, we have seen how people have dramatically changed the way they shop for groceries.
Upon the news that we would be entering a lockdown period in the face of Covid-19, we saw a surge in panic buying. This has now eased somewhat, but for a two to three-week period, grocers saw sales increase by up to 30%.
The sales volumes were similar to that of Christmas sales, but without the usual four months of preparation. Sales have now settled at circa 5-8% increase on a like-for-like basis; and while footfall is lower owing to one-in, one-out store policies, basket sizes and total purchases have increased in comparison to pre-Covid-19.
The cost implications arising from this increase in sales has greatly impacted the sector. It has been reported that up to 20% of supermarket staff have been unable to work due to self-isolating. Therefore, additional manpower, equipment and vehicles were needed to be resourced at short notice. While the government has been criticised for including the grocery sector in the business rates holidays, early indications show the business rates holiday cost savings will broadly help mitigate the additional costs incurred.
Having a larger store network should prove more beneficial. Tesco and Sainsbury’s are set to benefit the most from the number of stores and range of store formats in various locations.
Consumers have been adopting a “one main shop” approach to try and limit their exposure to potential Covid-19 contact areas, rather than topping up at various stores every few days. Large out-of-town stores will have seen less footfall as car usage has dropped while non-food stores in the same locations have remain closed. However, these locations are likely to benefit from a surge in customers when non-food retail stores reopen.
This may be sooner rather than later, as it is reported that Next plans to open retail park stores first. And while Lidl and Aldi might have been less well-positioned due to a smaller range of products, they will benefit from their strategic decision to focus on opening new stores in retail parks in recent years.
As detailed in previous CBRE research, online grocery sales in the UK have seen considerable growth over the past 10 years and currently sit at approximately 8% (£13bn) of all grocery sales. However, despite seeing growth, online sales have also experienced challenges and resistance from consumers, such as paying for delivery slots and lack of control over use-by dates of products being delivered. Covid-19 has clearly driven a spike in demand for online deliveries to further remove the need to visit potential virus contact areas. This is another example of where grocers have had to adapt very quickly to increase their capacity to enable them to fulfil online orders.
It is not surprising that Ocado has benefitted from the attractiveness of online grocery shopping, reporting an increase of more than 40% in orders. This surge has also spiked demand for shares, with its share price rising by more than 5% over the past month, valuing the business ahead of Sainsbury’s, Morrisons and other grocers, despite the losses reported by Ocado in recent years.
Ocado is nearly £15bn vs £9bn for Sainsbury and Morrisons combined. The decision by Ocado to switch from Waitrose to M&S products has spurred Waitrose on to further invest in its online platform and secure a new 110,000 sq ft logistics depot in Enfield, north London.
There is no doubt that in a post Covid-19 world, some consumers will be converted to buying their groceries online, leading to a likelihood of online grocery sales growing to 10% of all grocery sales over the next 24 months. That said, with economic challenges and subsequent job insecurity, consumers will be driven to make savvy choices and revert to a mix-and-match approach, whereby shopping at various stores every few days will return. This approach, which has been the trend for the past decade, has its positives, by reducing waste and allowing the consumer to benefit from different offers and promotions. This is where Aldi, Lidl and M&S Simply Food have gained market-share.
As online grocery shopping continues to grow and consumers hunt for the best deals, those retailers with large, well-located stores may be best placed to adapt their offer and cater for online order fulfilment predominantly through large out-of-town stores.
John Witherell is retail group senior director at CBRE
