January 27, 2022

Twin peaks : how can retailers meet the challenges of Covid and Brexit?

For retailers to respond to Brexit, as well the crisis set off by Covid, will take courage as well as agility, says Anastasia Laska, Vice President Partner Alliances and Business Development, Revionics, an Aptos company.

“To improve is to change. To be perfect is to have changed often,” and these famous words from Winston Churchill cannot be a better fit for UK retailers’ modus operandi in 2020 and beyond.

While global retail businesses had to deal with calamities caused by Covid – operational disruptions, volatile demand, rising costs, channel migration – UK retailers also have Brexit on top of that to contend with.

Brexit holds many uncertainties but there is one near-certainty: grocers, particularly those relying on goods from EU states – and that is 26% of all food supplied to the UK – will face rising costs at a time of heightened competition from discounters and digital channels, with shoppers more price-sensitive than ever.

November 2020 saw another drop in consumer confidence index to minus 33, the lowest reading since May.  Against the backdrop of the unstoppable juggernaut that is Brexit, deal or no deal, this suggest retail making a speedy rebound very unlikely. Many retailers, having almost exhausted their efforts of survival during three quarters of 2020, might not see the usual Christmas sales boost.

Come January, and as rising Brexit-driven costs begin to make their way through the supply chain, along with an unsustainable squeeze on margins and profits, how can grocers implement a more strategic approach to pricing that keeps the focus on value and customer loyalty while delivering sustainable results?

We already hear predictions that Brexit might bring more long-term damage and losses to UK retailers than Covid. So, how to prepare to keep pace with these changes, seen and unforeseen?

Firstly, retailers must respond with agility to market developments. Grocers need to start monitoring competitive price changes and shopper buying behaviours in real time, making sure they have automated pricing workflows to enable them to adapt strategy and execute price changes with speed, precision, confidence AND without margin leakage. Prices set incorrectly at the beginning of a month, will see revenue and margin erosion as soon as the products hit the shelves and last right through the month.

Secondly, by setting performance based on key value item (KVI) and price elasticity analysis can give retailers insight into the items where price truly matters to shoppers, as opposed to items that can help recover margins. Understanding the respective roles of own-label and branded items in price image also sharpens focus. Market basket analysis can pinpoint item affinities so grocers can craft promotions that increase shopper traffic and drive top and bottom-line results.

Rising costs may create pressure to raise prices at the same time that competitive actions cause a kneejerk, cost-cutting response. Progressive retailers conduct on-demand what-if scenario analysis to understand the impact a potential price change will have on units, margins and profits before implementing any changes.

Finally, retailers have to be willing to adapt and evolve their pricing strategy. The value of more sophisticated, AI and data-driven pricing approaches and workflows is to bring price strategy to life at the shelf. Retailers should continually assess the need to adjust the relative emphasis on revenues vs margins vs competitiveness at the item, category, department, location or banner level.

The demand is out there; it is just a question of knowing how to tap into it. UK shoppers have changed their behaviours dramatically, in terms of how much more they will pay for certain items that bring them cheer during lockdowns and a restricted Christmas. At the same time, worried about their jobs and finances, they will search doggedly the find the very best deals for staple items. The result is that they may change these behaviours short-term or possibly even permanently.

Being able to respond to these changes and further impacts after Brexit is the key to all retailers’ KPIs on revenue, margin, market share and brand equity with their customers.