The increasing threat from non-grocers.
UK Subscription Boxes Market:
- Forecast to reach £1B by 2022.
- Gaining new customers as high street footfall decline and retailers feel the pressure to fulfill online demand.
- Over ¼ of UK consumers signed up.
- 58% of subscription box businesses are planning to invest in new subscription offers. Up 72% in 2020 vs 2017.
- To keep up with the growing demand for grocery deliveries, Morrisons, M&S, Lidl have also launched home delivery subscription boxes. Boxes have included core range basic products to help shoppers stocking essentials.
Source; Retail Gazette Sep 2020
Subscription services offer customers a seamless and convenient experience as well as helping with budget management. Rewarding existing clients but locking new clients into a deal helps these companies to grow their customer base but remain a premium offering.
The impact of shoppers moving to online and D2C is largely unknown but the brand ambition for the transition is clear as illustrated by the recent Adidas announcement. They have shared that ecommerce is expected to be the single biggest driver of growth as they seek to double online sales by 2025 to up to €9bn.
Despite being a different industry, the implications for Grocery are undoubtedly significant.
Trading down and recessionary behaviour
Before the pandemic, discounters were seen as a game-changer in the market as Aldi and Lidl continued to gain a larger foothold. However, 2020 saw subdued growth as they were limited by the lack of online presence and the challenge of safely processing customers in-store during periods of high demand. As yet, there has been no significant evidence of customers trading down or recessionary behaviour at a macro level within grocery.
While not through choice, consumers are spending more time dining in. This has resulted in a -12% reduction in food and drink spending at a national level (Source; IGD COVID-19 continues to cause significant shifts in the food and drink industry 03 February 2021) and a growth in branded products over own label in supermarkets, reinforcing the hypothesis that we're trading down from eating out to branded products eaten in.
It is striking that the main consumer trends we saw in the last recession are the exact opposite of what has played out during the last 12 months. When we learn to live with the virus and the looming recession really starts to bite into consumer spending in our industry, we are likely to see a return to the main factors:
- Consumption migrating from branded products to private label
- Shoppers favouring value channels such as discounters
- Increased promotion [and everyday price competition]
So, while some brands have been experiencing an ‘Indian Summer’ on value, there could be a harsh winter ahead – and getting the value proposition right could make all the difference. We discuss this further in our paper; Recession Resilient Pricing: how to manage retail revenue as the market demands ever cheaper prices.
Long term market disruption
Baby Boomers have been at the heart of grocery evolution, with this base being the largest (IRI Data 52 weeks to March) and most affluent right now. This segment delivers a good proportion of traditional sales.
However, we need to look to the future.
Those under 30 spend 40% less per person and 30% less as a group, compared to 30 to 65-year olds on groceries (ONS Household expenditure by age of household). There are also now 25% fewer under 30-year olds than 30 to 65-year olds.
There is a danger that the windfall gifted to many food and drink categories due to social restrictions boosting sales by more than 6% in 2020 (IRI Total Store View 52 weeks to 26 Dec 2020) could be masking or distracting from these big market distortions, many of which are likely to stick once social restrictions are lifted, and the temporary windfall passes.