Retail, CPG and Logistics

A pandemic enters with a shopping cart: Can the supermarket sustain itself?

In 2015, during a TED talk, tech mogul and philanthropist Bill Gates predicted about the emergence and spread of a pandemic and warned that countries are ill-equipped to handle it. Circa 2020 and Gates’ prophecy has come true. The COVID-19 pandemic has spread rapidly across the globe and has adversely affected every aspect of human life. While several sectors were highly affected, some sectors such as retail witnessed impressive growth, particularly during the initial days. This blog discussed some of the key trends in the sector, with a special focus on supermarkets.

Trend #1: We’re moving at warp speed, Scotty!

When governments world over announced lockdowns to contain the pandemic, it kicked off pandemic buying and hoarding among people. Essential items such as food grains, dry fruits, groceries, cosmetics, toilet paper, and so on flew off the shelves in quick time. To reassure customers, retailers began posting videos of warehouses to demonstrate that they have enough stocks to last. However, amid the pandemic scare, there was a silver lining: the revenue for supermarkets in the US and Europe grew by a whopping 300%. To service an ever-increasing number of customers, retails stores ensured that their shelves were sufficiently stocked and open 24 x 7.

Trend #2: Short-term incentives leading to permanent hikes

When the pandemic began to spread rapidly, supermarkets were overwhelmed with an increasing number of customers, which led to longer working hours for employees. Since these frontline workers needed to be incentivised, a few supermarket chains began handing out extra wages as well as performance bonuses and promotions. While this can be construed as a goodwill gesture on the part of the chains, the bigger question is whether such measures can be sustainable once the threat of the pandemic recedes. The repercussions of such out-of-turn measures is already being witnessed in several countries as labour unions are demanding that extra wages should be continued as part of the salary and not rolled back once the pandemic subsides. While a few chains have announced the end of ‘hero bonus’ for their employees, it remains to be seen whether such a move will lead to large-scale retrenchment in the sector ().

Trend #3: Which way is the wind blowing?

It’s a fact that nothing lasts forever, not even a global pandemic. While the pandemic is now currently in the so-called Wave 2, governments expect it to end by 2021, by which time experts are hopeful that a vaccine might be around the corner to turn things around. For a majority of working professionals, work from home (WFH) has been the norm ever since the beginning of March. This WFH scenario has altered the consumption landscape, such as reduced expenditure on travel as more people are eating at home rather than venture outside. As a result, the hospitality industry has suffered significant losses with no immediate recovery in sight. Nevertheless, supermarket chains have been at the forefront of delivering essential supplies and are accelerating expansion plans to cope up with the demand. However, in a post-pandemic scenario when the new normal kicks in, supermarkets will have to relook at their strategy as growth rates will stabilise and revenues will flatten.

Trend #4: Show me your profit margin!

Of all the sectors that were affected by COVID-19 pandemic, the retail sector has emerged relatively unscathed. The sector’s resilience is understandable since supermarkets emerged as the go-to destination when most countries entered into lockdowns. One way to analyse this phenomenon is that since there are limited options and prices are less of a concern, people folk to supermarkets to resupply. For them, on-time availability is the buzzword, and not the quality of the goods. However, supermarkets have to ensure that their premises are completely sanitised, customers follow the safe distance protocol, and all safety measures are in place. In addition, reduced staff and additional expenditure on safety directly affects the bottom line of supermarkets, which is unsustainable in the long run.

Trend #5: From the cart to the mouse!

As mentioned previously, the pandemic has reshaped the buying patterns of customers worldwide. In fact, COVID-19 has accelerated growth of online shopping in the US, up 77% year on year. The fear of the pandemic has forced customers to opt for online transactions over visiting supermarkets and brick-and-mortar shops. With online mode comes the fear of fraud, revenue leakages, and so on. While business has been booming for online retailers, the threat of cyber frauds has caused concerns over profitability in the long run. This has resulted in businesses investing more capital on online safety features, thus adding to the overhead costs. Businesses need to factor in these additional costs when they are shifting from offline to online mode.

Trend #6: When customers decide to go social!

Customers expressing unhappiness about a product or a service on social media handles is a not new phenomenon. While it has improved customer experience to a larger extent, it has also provided an outlet for disgruntled customers to tarnish a brand. During the pandemic when retailers were busy stocking shelves and ringing tills to fulfill increasing demand, a new social trend has emerged. Customers are using their social connections or local groups to exchange information on inventory, group buying, and other important features. For instance, a local retailer had introduced a possibility of booking a slot to buy and purchase for home delivery. Under normal circumstances, the retailer’s site would be unable to fulfill demands for home delivery since the maximum quote would reach quickly. An individual in the customer group suggested that by logging into the retailer website on Monday midnight, it was possible to secure a slot, and voila, the advice worked! With the proliferation of smartphones, it’s possible that customers are more aware of inventory levels than the retailer himself.

Conclusion

The COVID-19 pandemic has forced businesses in every sector to adapt to the new normal and retail is no exception. The sector witnessed a phenomenal uptake in customers and revenues during the early days of the pandemic, with a particular spike in online buying. In response, the sector began implementing new measures, both online and offline, to meet the demand. As people get accustomed to the pandemic and the sector’s revenue stabilises, it remains to be seen whether this will weaken the sector’s ability to expand and reduce operational costs. The way forward is to create a sustainable consumer pull and engage through simplified processes and deliver a world-class user experience. To thrive, the sector needs to innovate faster, collaborate efficiently, and achieve more out of less. The future is already here and it’s digital.

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