June 4, 2020

How the Covid-19 crisis is changing business prospects for the UK grocery sector

As a result of the Covid-19 outbreak, many big brands in the UK grocery sector are proactively seeking ways to help their employees and consumers handle the hurdles ahead. Here Harsha Wickremasinghe, Head of Business Intelligence at Arrowpoint Advisory (the UK-based investment advisory firm), discusses the business prospects for the UK grocery sector amid the current crisis.

Like most industries, the grocery market has had to redefine itself during the Covid-19 crisis. It is a sector that, like the NHS, has had to respond to a huge and sudden increase in demand; deliver existing and new services with minimum interruption; and keep both its staff and customers safe. 

The sector has therefore had to act quickly, responding with on-the-fly learning and sheer determination in order to meet its crucial mission of feeding the nation. And it’s been done under the most intense public scrutiny. 

No time to plan 

While most other retailers have had time to plan and carry out their strategies for reopening in a new world of retail, the grocery sector and the key workers within it have had to carry on regardless, making radical changes as the crisis has developed. At the same time, the sector has had to manage huge spikes in demand, from the initial stockpiling pre-lockdown by a small section of consumers that encouraged panic buying by others, to a steadier, but still increased demand for goods as new buying patterns have emerged – with much of the out-of-home spend on food being channelled through supermarkets. 

There was no time to learn lessons before implementation, and no crib sheet to consult. It was a tidal wave of demand that came with little warning. As a result, it has forced a focus on excelling in retail basics – from managing the supply chain to maximising in-store operational efficiencies. 

The response has been impressive, and the grocery sector and those within it have to be commended. In a matter of weeks, they have had to make major structural and operational changes to their businesses that would have traditionally taken years to plan and then implement. From ramping up in-store availability, to introducing new delivery slots and recruiting the extra labour needed to keep stores and online sales running smoothly, the grocery sector has done a sterling job. 

Harsha Wickremasinghe, Head of Business Intelligence at Arrowpoint Advisory.

Not without cost 

However, the additional sales have come at a significant cost. The investment in staff and infrastructure has been huge. Most online grocery operations struggle to be profitable on a standalone basis, yet they have required significant investment to expand their operations in recent weeks. Implementing in-store social distancing and additional cleaning measures also comes at a significant price. But it’s a price that has had to be paid. 

Better supply chain and in-store management, as well as retailers’ efforts to reassure customers that items will generally be available, means that panic buying has mostly abated. As a result, a new norm of a carefully budgeted, better managed weekly or fortnightly shop by consumers, either in-store or online, is emerging.

Getting the balance right 

As we begin to approach a gradual exit from lockdown, the grocery retailers will no doubt be re-examining their strategies and capital expenditure priorities as they adjust to the new norm. But there is a delicate balancing act to manage when it comes to business prospects. 

Naturally, as mostly public companies, retailers have a commercial responsibility to deliver returns for their shareholders. But equally they can’t be seen to be profiteering from this crisis or doing anything at the expense of staff or customers. 

Thankfully, we are seeing some positive examples of grocery retailers taking these responsibilities seriously. Initiatives including increased pay for staff, in-store protective equipment such as checkout screens, and priority payments to smaller suppliers, are proof that the grocery sector is thinking about more important considerations than their traditional business objectives alone. 

Actions will be remembered

There are still many challenges to come, but the grocery sector is redefining its role in society as it responds to the Covid-19 crisis. It is keen to shown itself to be a responsible, proactive industry that takes care of its staff and customers. Its reaction, the spotlight on the sector, and the new recruits that have joined it from all walks of life could mean that it benefits from a more positive image in the future, aiding both recruitment and retention of staff. 

How consumer behaviour will play out in the long term, however, is perhaps too early to judge, but it is something the grocery sector will need to consider when planning future strategy and investment. Will consumers maintain the weekly shop mentality post-Covid? Or will they return to top-up shops, for example? Will new online customers return to stores? Or will the ease of online shopping lead to a permanent transition to this channel? 

Such questions will need to be considered carefully. In the meantime, we would hope that the many positive actions of the grocery sector – from suppliers to store staff – will be remembered by consumers, and stakeholders alike. Again, like the NHS, it is an industry whose response to the crisis should be applauded and will be remembered in a positive light.