What will define the winners in a changing retail landscape?

As grocery spend patterns normalise, high standards will define the winners, writes Owen Clifford, head of Retail Sector at Bank of Ireland.

Grocery inflation continues

Irish retailers are reporting a normalisation of grocery spend patterns with sales levels c7% behind the same period in 2021 when Covid-19 restrictions were in place. Grocery inflation has hit 6.5% reflecting the supply-chain issues and uncertain geo-political landscape – this represents the highest level of inflation since February 2013.

The large supermarket operators have been proactive in addressing cost of living concerns with targeted ad campaigns and voucher offers being strongly promoted in recent weeks (Kantar monthly Grocery update, June 2022).

“Leading retailers recognise that the best way to maintain loyalty is to consistently deliver an excellent service to their customers”

Given the prevailing inflation position across Europe, it is expected that we have not reached peak inflation and further increases are being forecast across the sector in the immediate future. As consumers seek cheaper alternatives across some product lines, all leading operators recognise that a strong own-brand offering will be critical to maintain customer engagement.

Investment continues within the market

As the ever more discerning Irish consumer seeks excellence in store standards, Irish grocery and convenience retailers/ brands recognise that investment is required to retain and attract footfall to their business.

This investment includes the delivery of new and revamped best in class stores that showcase new initiatives and offerings from individual brands.

Natasha Adams, the recently appointed Tesco Ireland CEO, has confirmed that competition authority clearance has been granted for the purchase of the Joyce group in Galway – nine stores will be re-branded to Tesco over the coming months.

Tesco have also opened a new store in Spencer Dock in Dublin in recent weeks demonstrating their continued commitment to the Irish market (Shelflife magazine – June 2022).

Changing retail landscape

The wider retail sector has delivered a promising start to 2022 with sales volumes (excluding motor sales) c9% better than the equivalent pre-pandemic period.

There were strong performances in the electrical, fashion and furniture/home improvements sub-sectors in particular (CSO Retail Index, May 2022). Retailers are now assessing the impact that current inflationary trends may have on discretionary spend in upcoming months and tailoring their business plans accordingly.

Preserving loyalty during an inflationary cycle

Leading retailers recognise that the best way to maintain loyalty is to consistently deliver an excellent service to their customers. This can only be achieved by taking time to meet, listen and proactively act upon feedback from their customers – this is how true “personalisation” takes place.

The strongest customer relationships are where two-way communication is embedded within the relationship – the retailer is available to give advice/share their knowledge of the product/service and the customer is comfortable providing feedback as they know it will be acted upon. The Irish retailers that went “above and beyond” to listen to their customers and meet their requirements during Covid-19 have been successful to date in retaining this business.

Loyalty built upon a price led proposition sits on an unsteady foundation as price can fluctuate linked to demand, supply chain issues, inflation etc. Loyalty built upon service is much more resilient to economic shocks.

Some further practical tips to preserve and generate loyalty during an inflationary cycle are contained within an article in the Irish Independent I contributed to in recent weeks.

Owen Clifford
Owen Clifford is head of Retail at Bank of Ireland.