The government has begun to ease the lockdown imposed to curb the spread of Covid-19, hoping to restart the economy while keeping the virus under control.
Market research company Nielsen is tracking the changes, helping the grocery industry prepare for the next phase of its development.
Mike Watkins, Nielsen’s UK Head of Retailer and Business Insight, told Grocery Trader how big an impact Covid-19 has had on the grocery market and what the future of the sector will look like.
What does your job involve on a day to day basis?
I work across retail and also manufacturing and financial services clients advising of the trends across retail, FMCG and shopping behaviour and how that will impact the industry. I’m part of the global thought leadership team and provide commentary internally and externally on retail trends.
Which sectors (product categories) of the grocery market have been in growth in recent years?
For the last few years up to the end of last year the growth had been in very similar categories every year – confectionery, soft drinks, alcohol, snacking products, crisps and snacks. But most recently into 2019, also bakery and morning goods as people started to experiment with different sorts of bakery products.
We talked a lot during Covid-19 about home baking but actually that was a growing interest for consumers over the last couple of years anyway. People started experimenting with different meals and menus for their family. However, I would say that during 2019 the market was very flat. I think we were reporting less than 1% growth and to be honest the market has not been particularly buoyant for the last few years. Over the last few months the world has changed dramatically.
Which sectors have experienced a more challenging time?
If you look at the long term Nielsen trends, the big four supermarkets have lost share and the majority of that lost share has been to Aldi and Lidl. That has been a trend we have been reporting for the last four or five years. There has been a transfer of sales from the big supermarkets to the discount format.
The other channel that has been doing well has been the convenience channel which has been in growth as shoppers were shopping more often at local proximity stores. Thirdly, online had been a growing channel. It had been growing in mid to high single digits for a few years which is well above the total market growth of around one or two per cent. So those were the key channel dynamics up to the end of 2019.
In your estimation, how big has the impact of Covid-19 been on the grocery market?
It has precipitated not just a disruption but a big transfer of spend from the out of home channel – pubs, restaurants cafes, bars, which is shut, to buying food at supermarkets. So you have the trends on the most recent four weekly market update. I think it’s more relevant to say where we are today, in the most recent few weeks, because the market was volatile as we entered lockdown in March.
We saw a dramatic growth in sales. I think they peaked at over 40% in one week at the end of March, which is bigger than Christmas and unplanned. During April the market declined because it was a weak Easter and Easter was a different time of the year. But as we went into May and we had pretty good weather during the spring and we were in this lockdown situation. The behaviour changed again and people learned how to go to supermarkets with social distancing requirements.
We are currently seeing the market growing during June on a weekly basis of around 8-10%. So we have gone from a flat market in 2019 to a supermarket industry growing around 10% in June. That is because people are having to buy more food from supermarkets because they are not going to work, they are not travelling as much, they have all got the families home from school or university and they are not able to eat out of home.
That has fundamentally changed the economics of the supermarket industry. While that sales growth has been strong, there has been a lot of cost behind that to contain that growth. The massive shift to online shopping which has been the single biggest change I have seen in 30 years in the supermarket industry. It is absolutely unprecedented.
How long will it take the grocery market to recover from Covid-19?
It depends what you mean by recover. To sustain current growth there is obviously the current opportunity/challenge of costs within the infrastructure, whether online or employing more people in store. For the supermarket industry, by which I mean all sorts of supermarkets from the big four major multiples to discounters to convenience stores, the supply chain is solid. So I don’t think it’s a recovery, it’s more about distribution and maintaining the availability as what shoppers are buying has been different.
It’s not just where they shop but they have been buying differently. They have been buying a lot more frozen food over the last three months. They have been buying a lot more beers, wines and spirits over the last four weeks. We are starting to see people buy crisps and snacks as we go into the summer season. There is strong demand from the consumer. The supply chain has done remarkably well to keep up with that demand. The only time there was temporary unavailability was when we had the massive surge in sales in March which were unprecedented and unplanned. Because of consumer behaviour, it took seven or 10 days for the supply chain to catch up. That is no longer a problem. The industry has also had to adjust to the new diets, the new menus of the consumer.
Will some consumer habits be permanently altered by Covid-19?
We need to be careful with saying permanent because at the moment we are going into what Nielsen calls the reboot phase, which we think will be for the rest of the year. By reboot I mean we will start to return, probably from July to I wouldn’t say a new normal but something which is closer to how we are going to be shopping for the rest of the year. So that is not the end state, that is just the next transition and we will believe it will be shoppers spending more online.
Shoppers are also spending a lot more in convenience stores at the moment. They are shopping very local. Ultra local gets talked about, where you will go literally to the closest store. There has been a growth in shopping in large stores. Clearly if people are social distancing, they are limited in the number of times they leave the home and go shopping. They are maximising the trips to the larger stores. That has been a trend over the last few weeks, we will see if that continues for the rest of the year but for as long as there is social distancing, which there will be, that will precipitate a change in social behaviour. So we are expecting similar shopping behaviour for the rest of the year. There is one big watch-out, which we have yet to understand. That is the impact of the recession, which will start to hit consumer spend probably around September or October. It is quite possible that will precipitate another change in behaviour. That is the known unknown.
How can supermarkets best prepare for the return to normal?
What I can suggest is, as all of our clients, the manufacturers and supermarkets, are paying very close attention to how consumer behaviour is changing, almost month by month at the moment. We saw dramatic changes in March, April and May. We expect another change in behaviour around September or October. I really don’t know how Christmas will look because that is a long time away. Retail is fast moving consumer goods and it does what it says on the label. We need to look at each month, see what the current trends are and anticipate what consumers are saying. We will then see if that translates into different behaviour. I mentioned the recession as the big thing to plan around because if we do have unemployment doubling to nine or 10%, we will have a considerable proportion of the population earning less. That has a natural pressure on discretionary household spend. Whilst there are some learnings from the recession 10 years ago the retail landscape is fundamentally different from the last recession.
This will be according to the Bank of England a much deeper recession. So what we would expect to see is people are going to have to save money, they will be shopping around. They will probably want to buy more products on promotion. We have seen in times gone past that people shift between high value and low value products to save money. We need to see how that looks. I don’t think I can give a projection. But those are the sort of things the industry will be thinking about in terms of a scenario of planning. At the same time, the industry is planning for Brexit in January and the impact that will have on imported food and drink. So there are a lot of things to plan for.
How can manufacturers assure consumers that the products they buy are free from risk?
I have not seen any evidence that that is a primary concern. Shoppers are concerned about hygiene and safety in general. What I would probably suggest is shoppers are concerned about the provenance of the product, the efficacy – does it do what it says on the label? To give that some context, pre-Covid around a quarter of shoppers were looking to pay a little bit more to have locally sourced products from the United Kingdom. That is now half of shoppers. They might want to support the local economy but you might suggest they are more confident buying British or locally sourced products.
Remember 40% of the shopping basket is fresh food, that is fruit and vegetables, chilled, fresh meat and poultry and bakery. A good proportion of that is imported or sourced. Roughly 50% is sourced from the UK and 50% is sourced from outside the UK, predominantly from Europe. That’s where shoppers are concerned because safety and hygiene backs into health. One of the underlying concerns of shoppers is the ongoing interest in health and wellbeing. If you put all that together, safety, hygiene, health and wellbeing, those are the areas where manufacturers and retailers will work together to feed the nation in a safe and efficient way.
Is there greater transparency today about the origin of products?
I think there is and there will be going forward. The French retailers have made it a strategy recently with their private label to be even clearer on the origin, provenance, as well as the ingredients on their private label. Private label is around 35% of all packaged goods bought in the UK. That is an opportunity for retailers to take the lead, but also manufacturers have a great role to play in terms of confidence in the product and understanding of the product.
I think the whole industry worked together very quickly and efficiently on the supply chain challenges a few months ago. I think the industry will work together equally well in terms of provenance, product and integrity.
Do the majority of consumers want to purchase products manufactured in their own country?
There is an interest in buying more locally sourced products. I think manufactured within the country is not something as clear to consumers as it may be of interest to the industry. I mentioned fresh foods where British beef, strawberries from Kent, that’s clearly understood. Where a product is manufactured I don’t think is really something consumers have top of mind. That’s for packaged goods. I think we should think more about the health angle of certain products and also sustainability is going to come into the mix.
It all fits into the broader agenda of sustainability which goes back to the supply chain, which goes back to country of origin. All of these things are still very important. You could take the view that the Covid crisis has crystallised all of these broader issues under a single umbrella. I think that is where we are going to see behaviour move, certainly into next year, because the world has changed in terms of where we shop. But also you can anticipate the reasons for choosing a brand or a product or a retailer will also change fundamentally. What we have all done differently over the last three months we will also do differently over the next six months.
Are you able to share any data about the rise of online shopping – how much it has already grown and how much it is set to grow in the next five years?
Before the Covid crisis, we predicted online grocery would be around 10% of the market by 2021. It has recently hit 13% of the market. It has been growing at up to 100% in recent weeks and if this continues, I think online grocery will remain at around 13% of the total market for the next few months, as it’s likely that many shoppers who have switched to online shopping since March will remain online shoppers.
Around one in three shoppers are new shoppers to online. A good proportion of those shoppers will stay online having found that it can be done. I think it will continue. In many respects, Covid has accelerated some of the trends we saw happening anyway. Online is part of the way shoppers are willing to use new technology. Digital, scan and go and cashless payments have suddenly become really important to consumers and that will continue.
Buying more food to eat at home for the meal occasion is something which has happened very quickly and that will continue. A lot of the supermarkets are partnering with Deliveroo to provide the big meal occasion at home. We talked about health. We talked about the need to save money in terms of the potential impact of the recession. We also talked about provenance, quality and country of origin. Those are the five things that we think will be the fundamental long term changes in behaviour.