Since the fall of 2021, the food chain has seen rising costs due to several factors, starting with logistical disruptions and speculation caused by the ongoing coronavirus pandemic, followed by a post-COVID scarcity of human resources, and recently the outbreak of war in Ukraine. Subsequent sanctions against Russia drove up energy prices and heavily affected the availability of raw materials such as grains, sunflower oil and fertilizer. These factors resulted in structural inflation in Europe that started early in 2022.
During the pandemic, we saw the impact on consumer behavior and the closure of the restaurant industry, leading to an increase in demand for larger supermarkets with more complete, upscale offerings and larger stores, where one-half meter measures were more manageable. Consumers began to prefer full-service supermarkets with a wider range of luxury products and a more convenient shopping experience. Because they had money to spare, the average consumer spend in supermarkets grew strongly.
Since the full-scale reopening of the restaurant industry in 2022, a lot of demand flowed back to restaurants. But just as we thought that it was safe to go back into the water, the next wave of misery hit: the attack by Russia on Ukraine. Inflation is now causing price-conscious consumers to curb their spending in restaurants and upper-class, expensive, specialty food stores, and move toward discounters and cheaper retail formats. Talk about a pendulum swinging crazily to all sides of the retail scale.
With pressure for the favor of the consumer mounting, European supermarkets have to differentiate their stores and offer more and more. This requires creativity, entrepreneurship, and the implementation of new, more flexible forms of distribution. Traditional supermarkets are facing increasing competition from other formats, including convenience stores and e-commerce. Supermarkets need to adapt to these changing market conditions by offering a more diverse range of products and services, such as home delivery and click-and-collect options. They also need to improve their online presence, as more consumers are turning to online channels to purchase groceries.
To remain competitive, supermarkets need to invest in technology and automation to improve efficiency, reduce costs, and improve the customer experience. This can include things like self-checkout, mobile payments and digital kiosks. I am sure we will soon see the first food retailers using technology to improve the customer experience, such as through the use of augmented reality and virtual reality in store.
Many supermarkets in Europe are implementing sustainable and environmentally friendly initiatives to appeal to consumers who are becoming more conscious of their impact on the environment. This includes aspects like reducing food waste, using more sustainable packaging materials, and sourcing products from local and organic farmers.
Some go further, such as Lidl with its supermarket dubbed ‘The most sustainable supermarket of the Netherlands.’ Thanks to using sustainable and circular materials, the environmental impact of Lidl Zero has been minimized radically. Over 90% of the installations are demountable and/or recyclable. Old Lidl staff polo shirts were processed into insulation. The wooden outer wall of the building was treated with a Japanese burning technique called shou-sugi-ban, which makes the wood last even longer and requires less maintenance.
The store realizes “zero” on the energy meter, thanks to 1,566 solar panels. Customers can also make use of these, through free charging stations for electric cars and bicycles. Supplying the branch is 100% emission-free, thanks to an electric truck with an all-electric cooling system. The building is not connected to the sewer and, like all other Lidl branches, is not connected to the natural gas network. Does it attract customers and increase loyalty? The answer is a resounding ‘yes!’
What makes me really happy is that many supermarkets — including the hard discounters — are now focusing on health and are expanding their range of fresh produce, organic food, and meat replacements. It actually looks as if retailers have really started caring.
As the economic pressures rise and the hunt is on for the favor of the consumer, European retailers are steadily moving into blurring. We are seeing many developments in the virtual domain within food retail. Food retailers such as Spar, Marqt, Stach, Albert Heijn To Go are increasingly present on the online platforms of delivery restaurants. Picnic, the leading ‘online only’ supermarket, is on its way to becoming the market leader in online food delivery, a market with a turnover of more than 2.5 billion euros.
In physical stores, automated systems are increasingly taking over the role of the manned supermarket checkout. In just over two years, self-scanning and checkout has become the norm in The Netherlands. The share of self-scanned transactions among consumers passed 50% in the course of 2022.
Supermarket groups are developing mini-markets for offices, hotels and traffic locations. Sales are often made via app-driven vending machines. Where will it end? Watch this space.
Nic Jooste, owner of NJ Immersed, is a fresh produce marketing and CSR specialist based in Rotterdam, the Netherlands. He can be reached at nic@nicjooste.nl.
