How British supermarkets are coping amid inflation and cost of living crisis

The battle of convenience is raging in the grocery industry, and British supermarkets are at the forefront. For years, retailers have adapted to changing consumer preferences, invested in omnichannel marketing strategies, and enhanced in-store experiences. But the COVID-19 pandemic has accelerated these efforts, with the rise of online ordering and delivery forcing supermarkets to keep up or risk losing out to disruptors. As their customers' demands and expectations altered practically overnight, retailers have been accelerating their offline and online initiatives at a pace never previously witnessed. Additionally, the slim profit associated with selling goods is an intriguing dynamic within the supermarket industry.

These changes will significantly impact the economic viability of supermarkets in the future. Even though consumers have progressively started returning to physical locations, many need help to pass up the convenience and ease of online ordering. Some consumers believe doing their grocery shopping online helps them save time. However, not all groceries meet this requirement from the customer.

This is one area, among many others, where supermarkets are lagging behind. Experts believe grocery stores need to emulate how disruptors have changed consumer expectations by providing effective measures, such as mobile experiences, prompt delivery, and large inventories, to keep up.

With consumers having an abundance of options, it has become increasingly difficult for British businesses to ensure they offer the perfect combination of products and experiences that will keep customers coming back. In this fiercely competitive landscape, harnessing the power of data has become an indispensable tool. Many supermarkets, for instance, enhance the in-store experience by investing in technology for touchless payments and quick checkouts to speed up the purchasing process.

Overall, the market for groceries and food delivery is undergoing enormous change, presenting supermarkets with remarkable opportunities to foster innovation and elevate the overall shopping experience. Although the current challenges could seem overwhelming, businesses that address them comprehensively will unlock possibilities for substantial growth and heightened customer satisfaction. Adapting to change has become imperative for grocery retailers, and the question that arises is how to effectively navigate this evolving landscape.

At International Business Times UK, we're taking a closer look at how British supermarkets are meeting the evolving needs of consumers and how they can stay ahead of the curve in the years to come. Join us as we explore the strategies and solutions that will shape the future of grocery retail.

British supermarkets contending with multi-faceted challenges

Although three-quarters of British consumers stick to their preferred supermarket, the British retail industry is accustomed to dealing with its clients' complicated and shifting needs.

The pandemic, Brexit, and the cost of living crises are among the issues that supermarkets had to cope with in the past three years alone, all of which impacted how customers behaved.

Unfortunately, the British populace, suffering from high grocery price inflation for the ninth month in a row, is increasingly looking around for the best deal, so supermarkets must find ways to keep up.

According to data from the British data analytics company Kantar, the country's grocery inflation reached 17 per cent for the first time in mid-February, as PYMNTS reported earlier this year.

Long-term price increases have been affecting consumers, and this February, Kantar says, marks a full year since monthly grocery inflation surpassed 4 per cent. This is significantly impacting people's lives, says Kantar.

Based on Kantar's recent research conducted in February, energy costs emerged as the primary financial concern for the general public. Close behind, two-thirds of individuals expressed greater worry about the prices of food and beverages compared to concerns regarding public sector strikes and climate change. Notably, the number of people facing financial hardships has risen from one in five to one-quarter in the same period last year, underscoring the significance of the issue. The data provided by Kantar paints a clear picture. Kantar's analysis warns that unless consumers modify their grocery shopping habits, average annual household costs will surge by £811.

In order to handle growing prices, supermarkets and consumers are adapting to the changes. In this highly competitive industry, consumers are still fighting for the best value, especially as conventional shops try to hold onto market share from discounters.

Reducing costs and increasing efficiency before raising prices

Duncan Brewer, Partner at EY's Strategy Consultancy EY-Parthenon, emphasises the importance for businesses to carefully evaluate the impact of inflation on their consumer base before making decisions regarding price hikes. Brewer highlighted that each consumer is unique, adding that a store won't be able to determine how much of the cost increase they may pass on to their consumers without pushing them to a rival if they don't know how their consumers will be impacted.

Brewer emphasises the importance of cost reduction as a primary step before taking any action. According to him, raising prices should be considered as a last resort. In order to combat the challenges posed by soaring utility costs, one approach is to focus on enhancing energy efficiency by maximising operational efficiency. Additionally, Brewer suggests rationalising the product line, enabling businesses to concentrate on their core and top-selling products, thereby streamlining operations and optimising profitability

Shortage of fresh produce

In a recent development, major British supermarket retailers have failed to meet consumer demand for fresh fruit and vegetables, leading to shortages, necessitating the implementation of purchasing limitations.

In a recent report, Rebecca Crook, Chief Growth Officer at CI&T, highlighted the potential of technology to address fruit and vegetable shortages. She explained why supermarkets are reluctant to raise prices and risk losing customers. Crook emphasised that technology has played a crucial role in assisting farmers, leveraging tools such as moisture sensors, aerial photographs, and GPS. She expressed optimism in witnessing the farming sector embracing technology to enable precise forecasting and data-driven decision-making, allowing them to determine what crops to grow, when to grow them, and how to align production with customer demand.

Additionally, research demonstrates that consumers are motivated to achieve their buying objectives and will persist in making their planned purchases until they do. Whether it's shopping for apples or locating veggies, no measure of existing commitment can overcome the need to fulfil a shopping goal.

As mentioned earlier, the success of any retailer relies on customer retention and sustainability. This leads to enhanced customer loyalty, reduced marketing costs, and streamlined administrative expenses. However, customers' migrating to private greengrocers and farm shops in response to recent shortages in food production is evidence that loyalty can be fickle.

Rewards and loyalty programs critical for customer retention

One of the biggest supermarket chains in Britain, Asda, revealed in a press release on April 17 that customers would be able to earn £5 in their Asda Rewards cash pot when they purchase the company's frozen roast dinner solution, which costs about £12.

Asda noted that the frozen dinner option, perfect for families on a budget and offered online and in a few select stores, comes with one chicken joint, two sides, and one ice cream dessert option. It costs just over £3 per head to feed a family of four a delicious roast dinner, complete with an after-dinner treat.

With British consumers highly valuing rewards and loyalty programs when selecting where to shop, Asda's initiative is expected to attract attention. Store cards have become valuable tools for consumers in the face of the rising cost of living, offering lower prices, coupons, and points when scanned at the register.

In fact, British respondents to a survey for PYMNTS' 2023 'Global Digital Shopping Playbook' stated that rewards "are the single most important shopping feature they want merchants to provide." The study examined the purchasing patterns of over 16,000 consumers and merchants across six countries.

Additionally, according to the study, 8 per cent of British consumers feel that digital reward schemes are even more valuable to them than a different shopping option, and 40 per cent of all British consumers want retailers to offer them.

Furthermore, the study reveals that 44 per cent of supermarket buyers in Britain say they spend more money at businesses with reward programs, and 45 per cent indicated that loyalty programs influence where they shop.

The largest British supermarket chains have diversified from the traditional model and expanded their programs over time to get an advantage over their rivals and capitalise on Brits' affinity for loyalty cards.

Supermarkets implement price reductions and aggressive promotions to increase their value perception

Shoppers from all demographics gravitate toward discount supermarkets as costs rise further. The Big Four- Tesco, Sainsbury's, Asda and Morrisons, are implementing price reductions and aggressive promotions like Tesco's Clubcard Prices, Low Everyday Prices, and Aldi Price Match pricing strategies to stem their declining customer base and increase their perceived value. Tesco's value perception has increased by 483 base points in the last couple of years, which is a big win for this three-pronged pricing strategy.

Of course, the fundamental idea — accumulating points to receive rewards — remains the same. Beyond that, British supermarkets are constantly innovating. For instance, certain beneficiaries of M&S's Sparks reward program were recently encouraged to become part of a new, paid-for tier called Sparks Plus.

Members of the upgraded loyalty program receive monthly benefits such as a £10 voucher, unrestricted next-day delivery, a complimentary monthly hot beverage from M&S cafés, and other exclusive perks, all available for an annual fee of £120.

The most recent action comes after M&S's Sparks Pay store card, which is only available to individuals of the company's loyalty program, which was introduced in October. Additionally, M&S is among the many stores in Britain that integrate banking services into their reward program. Tesco, the largest grocery operator in the country, also joined the trend by launching its own debit card called Tesco Clubcard Pay+ in 2021. This card enables users to earn Clubcard points on all purchases, not just those made at Tesco.

Final thoughts

To sum up, British supermarkets are facing a challenging time, with customers feeling the pressure of rising grocery prices caused by factors such as the pandemic, Brexit, and the cost of living crisis. High inflation has led customers to seek the best deals available, and their loyalty to a particular supermarket is not guaranteed if better options arise. Retailers must prioritise cost reduction and efficiency improvements before considering price increases.

While rewards and loyalty programs play a crucial role in customer retention, retailers need to ensure customer satisfaction by offering value for money. It is important to acknowledge that loyalty among customers can be fleeting. Despite these challenges, British supermarkets continue to innovate, with rewards and loyalty programs remaining a fundamental aspect of their strategies.