Industry Context

The grocery sector continues to evolve and the acceleration of grocery e-commerce has been a real game-changer. For some the financial cost of the move to the lower margin channel of online has been offset by the increase in volume resulting from the closure of the hospitality sector. However, whilst this is changing as the hospitality sector reopens and online and delivery services will reduce their penetration levels, they are set to remain significantly higher than before the pandemic.

The customer is also changing, the KPMG COVID-19 global tracker has highlighted major consumer shifts around online, value, and lifestyle agendas all of which are influencing their selection criteria. This is coupled with an increased consumer desire to see a reduction in goods with extensive food miles and a focus on locally sourced produce. Historic loyalty is under threat as consumers prioritize value and convenience.

There are significant threats to future grocery margins: the continued market share growth of discounters, the channel switch to online, higher sourcing and supply chain costs, alongside the reopening of restaurants.

The grocery industry rose to the challenge of keeping people fed through the pandemic and have focused intently on consumer and supplier problem solving. The question remains as to whether their individual efforts will have an effect on long term loyalty.

Globally the role of the bricks and mortar store as a compromise between value and inspiration is now tilting towards inspiration, as consumers look to have reasons to visit a physical store beyond just purchasing goods. Supermarkets across the US, Latin America, Russia, and Japan are redefining the shopper experience. New opportunities to engage and inspire are emerging with a growth in cookery schools, live demonstrations and access to cookery experts, made available both physically and virtually. Grocers are having to find new ways to entice shoppers into their stores. Many though have yet to rethink the shopper experience.

Key trends

Grocery with its high touch and frequent interactions is the leading sector in this survey. Supplier selection is increasingly being shaped by key shifts as online becomes core, value is sought again (price sensitivity), and consumer lifestyle agendas drive a focus on health, sustainability, and convenience.

The consumer is now multimodal, keen to use whatever is the most convenient approach at any point in time. The need to physically engage with the products on offer has become less, but not gone entirely. The challenge for the retailers now is understanding these multiple touchpoints - knowing when the customer is shopping in-store and online and making sure the data enables real-time decisioning about offers, products and services.

In the grocery sector there are three clear drivers of choice, accelerated over the last 18 months:

  1. The health of the consumer: as consumers have been forced to think about their health, they are increasingly concerned about being fitter, healthier, and better. They are gravitating towards companies that can demonstrate how their offerings enable healthy lifestyle improvements. Healthy eating, app-based diet planning and focusing on eating well to live well have become central to grocery propositions.
  2. The health of the planet: concern about disposable plastics, packaging and sustainability are at an elevated level. In the research some two thirds of customers say they are willing to pay more for goods that demonstrate they are planet friendly.
  3. The quality of the digital experience: as consumers of all ages have become proficient at using ecommerce it has become core to the customer relationship. Consumers have high expectations of the digital experience which have been set by companies such as Amazon.

These lifestyle agendas are reflected in the key trends across each of the Six Pillars which are as follows:

The initial focus on staff and employee safety is still relevant but is now coupled with an increased consumer concern as to sustainability and hygienic packaging. The company’s purpose, values and commitment to sustainability and eco-friendly products and practices are coming under consumer scrutiny.

The grocery industry rose to the challenge of keeping people fed through the pandemic and have focused intently on consumer and supplier problem solving. The role of the bricks and mortar store as a compromise between value and inspiration is now tilting towards inspiration, as consumers look to have reasons to visit a physical store beyond just purchasing goods.

The industry has become very adept at setting and resetting customer expectations, regular letters from CEOs to customers as well as press communications have kept customers informed at a time when the level of uncertainty was at its highest. For many this involved the daily scrutiny of customer feedback and the rapid tailoring of messages accordingly.

Time and Effort
With the massive swing to online, through rapid ecommerce scaling, grocery retailers were able to reduce the time and effort their customers need to expend to a minimum.

Advanced analytics are enabling grocers to move from mass to personalized promotions and from harmonized assortments to store-specific ones. The role of the loyalty scheme is changing with significant price variation on key products emerging for loyalty scheme members and non-members.

Staff concern for customers and vice versa has led to significantly better staff customer relationships, the casual chat at the checkout has become important to both.

The Customer Experience Leaders

Keurslager are a deli and fresh meat business based in the Netherlands, where food is showcased and presented not just stacked on a shelf, it is the passion for the produce that is evident in every store and every interaction that sets Keurslager apart.

OK Supermarkets were ranked the third highest of all companies in Japan. With its catch phrase “OK – everyday low price” this supermarket’s selling point is low price, wide selection and ultra-friendly staff. The commitment to low price is total, they describe “everyday as sale day”. In stores there is a signboard that says, "Please let us know if you find a higher price than other stores. We will get it down”. Uniquely they have what they describe as an “honest card”, preannouncing price changes so customers can decide whether to stock up or wait. OK Store Club members get an automatic 3% discount – anyone can join Store Club, there is no subscription charge.1

Former Costco CEO Jim Senegal, once remarked that “retail is getting one million small details right every day”. The Costco treasure hunt customer experience is one way the company tries to inspire and incentivize customer loyalty. It encourages employees to be helpful and keen to please to complete the customer experience.

La Formaggeria Gran Moravia is a specialist grocery retailer based in the Czech Republic and is dedicated to a celebration of cheese and associated dairy products, it also carries a range of quality Italian produce. Recipes, help, advice are all part of the service from well trained and passionate staff. In their own Litovel cheese factory, amongst a range of cheeses they produce Gran Moravia, a special cheese that takes 18 months to mature, but is their signature product. They describe themselves as the eco-sustainable group and were one of the first producers globally to achieve carbon neutrality.2

H-E-B have long performed well in our US index and their huge efforts during the pandemic to support the communities they are part of has been reflected in their scores this year, to providing an outlet for local restaurants, to launching H-E-B Go an app that enables goods to be scanned on a smartphone for rapid contactless check out, H-E-B have constantly innovated as they respond to the pandemic.3

Grocery supplier selection is increasingly being shaped by availability relating to stock shortages due to COVID-19, geo-political disruptions, rise in popularity of online ordering, increasing price and value sensitivity, and consumer lifestyle agendas driving a focus on health and sustainability. The Grocery sector needs to be adaptable to the consumer needs and also how the consumer shops whether that be online, home delivery, pickup or in store and the shopping mission.

Paul Martin
Chair, Global Retail Steering Group, UK Head of Retail
KPMG in the UK

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La Formaggeria Gran Moravia

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OK supermarket