Rapid changes are reshaping the grocery and convenience retail industry in Australia and globally.
This industry, which takes part in the daily life for millions, is encountering many challenges that are transforming how retailers operate and engage with their customers. These include the rise of e-commerce and digital platforms, changing consumer behaviours, and evolving market dynamics.
This article delves into some of the critical hurdles convenience and grocery retailers face in Australia, with strategies to help you thrive in an ever-changing environment.
Here are five key challenges for grocery and convenience retailers:
1. The “right now” customer
For consumers, convenience is still king. Around two-thirds (67%) of consumers indicate that it is important that retailers offer them options to save time while shopping. In a Deloitte survey, 60% of Australian consumers cited convenience as a key factor in purchasing food.
To meet consumers’ expectations for “right now,” retailers must accommodate their customers wherever they want to shop and on the terms they wish to purchase. They require retail offerings that fit their busy lifestyles.
The emergence of convenient foods and snacks has become a beacon for those navigating busy lives. Food-to-go provides an opportunity to meet consumers’ needs for quick and easy options at an affordable price without compromising on flavour or nutrition. In Europe, according to a McKinsey study, food-to-go is one of the top five trends for 2024, with CEOs expecting food-to-go to drive traffic, raise margins, and generate cross-selling opportunities.
2. Inflation and the cost-of-living crisis
Inflation and the cost-of-living crisis are having a long-term impact on consumers and retailers. With surging interest rates, consumers’ disposable incomes have taken a major hit.
Although inflation has loosened in recent months, consumers are still feeling the pinch, particularly Australians aged 25 to 29 and those who are renting. The CommBank iQ Cost of Living Insights Report for May 2024 showed that higher costs of living remain an entrenched reality that’s squeezing household budgets.
So, how are shoppers dealing with budget pressures and how does this impact grocery and convenience retailers?
Inflation affects almost everything for the consumer, from where and how they shop to what they buy. The ACCC survey showed that many consumers are cutting back on non-essential items and spending more time shopping around for savings. Shoppers are also becoming more value-conscious and switching to less-expensive private-label items or buying in bulk. As a result, private labels and discount goods have benefited – the private label share in Australia is growing faster than branded goods.
In the cost of living crisis, retailers need to be able to demonstrate value to their customers. As customers are becoming more price-sensitive, they want to see that retailers are providing value, whether in the form of special offers, co-buy promotions, or loyalty rewards.
With more consumers tightening their purse strings, customers are also trading up on certain goods and giving themselves “little treats,” especially as they trade meals out for dining in. This creates an opportunity for grocery and convenience stores to appeal to customers with unique product offerings, such as luxury snacks and food-to-go.
Inflation isn’t just weighing on consumers either. Grocery and convenience stores are dealing with rising operating costs, including surging labour and energy costs. This forces retailers to look at managing their costs, whether through their product mix, technologies, or other strategies, to increase efficiency and margins without compromising on the customer experience.
3. Healthy, functional foods
Even as consumers try to stretch their budgets, the quest for health and longevity continues. Consumers crave well-being, which is why functional food claims such as “boosting energy” and “supporting health” continue to gain traction. Research shows that 67% of consumers say they pay high or very high attention to the ingredients used in food and drinks, with 45% finding it essential the food or beverages they buy boost immunity and 35% looking for products that boost energy.
Research by Deloitte shows that, even with inflation, demand for health and wellness products stays consistent. As many as 55% of consumers say they are willing to pay a premium for the right foods because they contribute to their health and wellness.
To meet this demand, convenience stores have shifted towards a greater focus on fresh food, such as in-house prepared sandwiches, rolls, salads, and even baked potatoes with a choice of healthy toppings.
Going hand-in-hand with the demand for healthy foods, consumers are also seeking foods and beverages that offer a sense of comfort, especially to help them withstand the stresses of a fast-paced life and fatigue. To meet this demand, convenience retailers are offering hot, hearty meals prepared in-store, such as pastas, lasagnes, jaffles, and freshly cooked pizzas.
4. Rising energy costs
Rising electricity costs are a continuous headache for retailers. The cost of doing business, or simply keeping the lights on, has increased over the past few years and continues to impact store profits.
Managing energy costs is essential for a retailer’s financial health and sustainability, and implementing some simple energy-saving practices can add up to significant savings over time.
Energy efficiency is one of the best ways for retailers to reduce energy bills. Many retailers are saving energy by updating old appliances and equipment with new ones. For example, this may be replacing existing refrigerators or food display cabinets with more energy-efficient options.
Whether purchasing or hiring new equipment, choosing energy-efficient appliances can result in significant long-term savings on energy bills.
Another key tip is to make sure equipment is set to the correct temperature based on the manufacturer’s recommendations, and regularly maintain door seals to avoid losing cool air.
5. Staff shortages
Staff shortages are a serious business issue. The talent shortage is holding back business growth, with many retailers reluctant to introduce new offerings without knowing if there will be staff to support them.
How can retailers grow without putting pressure on existing staff? When introducing new services or products that require labour, the key is to first consider the impact on staff.
For example, retailers can introduce food-to-go by choosing automated or easy-to-use equipment that keep labour requirements to a minimum, such as the Perfect Fry automated deep fryer. Unlike traditional deep fryers, the Perfect Fry doesn’t require a qualified chef – it can be used with minimal training. As a result, retailers can grow their food sales without extra labour costs.
Conclusion
The Australian convenience and grocery retail sector is at a pivotal juncture, where meeting consumers’ evolving demands and overcoming the ongoing challenges of energy and labour costs is key to driving growth. It is paramount for retailers to offer the right products, particularly those that cater to the fast-paced lifestyle of modern consumers, such as food-to-go. This provides a pathway for retailers to differentiate themselves in a competitive market and ensure sustainable growth.
For more information on how to drive growth and increase your food sales, contact Meris at 1800 265 771 or fill out our contact form.
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