The grocery business has long been considered recession-proof because everyone needs to eat, right?
That’s true. However, food retail is among the most complicated, dynamic, and brutally competitive sectors. Consumer demands are ever-shifting, while new models for selling groceries are continually arising that keep the system in a state of flux.
For example, when big-box retailers, such as Wal-Mart and Target, entered the grocery sector, traditional stand-alone supermarkets faced catastrophic consequences. The margin on food sales has always been razor-thin. When the “big players” came in and began competing on price, smaller entities were forced out in record numbers.
Grocery stores that want to survive must become masters of managing their supply chains to survive. Some key points to consider are:
E-commerce
No grocery seller can afford not to incorporate an online element into their sales. As behemoths like Amazon get better at the logistics of distribution, they can sell even highly perishable foods, such as fruits and vegetables, by offering 1-hour delivery. This is already standard in China. Alibaba and JD-Com compete heavily in the grocery sector by guaranteeing a great 30-minute delivery time in major cities.
Restaurants and Food-to-Go
Sit-down restaurants are getting better and ramping up delivery and take-out or food-to-go services. It’s eating into traditional grocery retail significantly. Grocery stores can counter by establishing their own sit-down locations on-premise, such as a del. They can also offer pre-prepared meals for delivery.
Fresh Foods Demand
Consumers demanding fresh, local, and organic foods is a significant trend. What it means for grocers is developing a way to source food closer from local providers, such as small organic produce farmers and those who raise specialty meats. The shift is away from trucking in produce and meats from centralized food processing facilities to make deals with many local small farmers and food producers.
Today, food retailers must make tough decisions on where to place their bets in terms of supply chain and procurement. They need to zero in on the competing-on-price “lean” supply chains while balancing the quick and responsive procurement strategies that offer fresh and organic products grown locally. The latter category is not where grocery stores compete on price. Rather, they cater to the demand for sustainable and socially conscious food choices for which shoppers are willing to pay more.