Heightened over the past couple of years as a result of strained economic conditions, margin pressures remain a top priority for retailers given rising food price inflation and associated costs such as wage growth. Balancing maintaining a healthy margin with trying to limit price increases for the consumer continue to characterise many retailer strategies. In some markets, governments have mandated or urged retailers to absorb price increases and refrain from passing these on to consumers, as we have seen in France and Spain. Mandated or not, many retailers have been incentivised to do this in a bid to retain their customer base and compete with other retailers by retaining market share. For smaller retailers who have become more financially exposed over the past few years as a result of cost pressures, we may begin to see a rise in the number of mergers and acquisitions as the larger grocery players move in to increase their market share. 

Lidl, Europe’s largest leading discount grocery store, continues to target cost-saving consumers by limiting the transfer of the increase in cost associated with operations in the final sales price of items. Its permanent price containment policy aims at keeping products below the food CPI. The most successful retailers will enhance loyalty benefits beyond pricing, especially during seasonal periods to attract and promote customer loyalty. This is a strategy used by Sainsbury’s, which has invested in initiatives that focus on keeping prices low and reducing costs across its business, that have subsequently been passed on to the consumer. Its ‘Low Everyday Prices’ offering has allowed it to compete with the discounters.

Another way retailers can remain price competitive is by improving operating efficiency measures and implementing automation. This will help to minimise operational costs by mitigating the impact of wage growth and can include implementing self-checkouts in-store and efficient warehousing technology.

Preferred retail formats evolving to local, centrally-located stores 

The type of grocery format is also relevant to retailer strategy. We are starting to see a rise in consumer preference for convenience and smaller formats, leading to many retailers focusing on city-centre ‘express’ stores and reducing the larger hypermarket format. This role of convenience and independent stores has become increasingly prominent since the onset of the pandemic. They allow consumers to make smaller and more frequent, essential, ‘top-up’ purchases in smaller units close to their homes. As a result, shoppers have become much more reliant on what is local, in addition to larger, less frequent supermarket shops. This is resulting in many retailers having to rethink their hypermarket footprint.

For grocery stores located outside of city centres, for example, those located in shopping centres, the best assets need to be decentralised from the main shopping centre so that consumers can easily access the store by car and utilise the click-and-collect service. These types of supermarkets also need a good retail mix provided by the anchored centre to ensure high footfall to the location. 

The sustainability-conscious consumer

A sustainability focus within the real estate industry is gaining momentum, and this is becoming more pertinent in the grocery sector for occupiers and consumers alike. Sustainability can encompass all aspects of the sector, from the credentials of the physical building to the supply chain and sale of food goods. 

Regarding the physical store, sustainability initiatives have resulted in retailers improving the green credentials of their assets, such as incorporating solar panels and electric vehicle chargers. Additionally, food retailers offering locally sourced produce appeals to consumer preference to shop locally, both shortening the supply chain and reducing air miles where applicable, also supporting local businesses and farmers. As a result, consumers are often more willing to pay a higher price for organically grown food in support. 

For some retailers, initiatives encouraging consumers to shop more healthily and sustainably have been developed. In Belgium, the Delhaize chain has created an online app that can suggest healthy alternatives to customers, with a discount of 5% or more included to incentivise the switch. In the UK, retailers such as Waitrose and Marks and Spencer are increasingly offering products in unpackaged formats, such as rice and pasta, with the idea of reducing plastic waste by encouraging consumers to use reusable containers. 

_{Read the articles within Spotlight: European Grocery Market 2024 below.}