ARLINGTON, Va. – Today’s retail food environment is dynamic and reflects a diverse range of consumer expectations and priorities. An Oct. 4 webinar hosted by the Food Marketing Institute (FMI) provided a snapshot of the opportunities and challenges reported by food retailers in a recent survey. Many operators of successful traditional supermarkets are averting threats from non-traditional venues and online platforms that are chipping away at their market share while discovering growth areas for their businesses.
Leslie Sarasin, FMI’s president and CEO, provided an overview of the findings from the association’s 2018 Food Retailing Industry Speaks report. The 68th annual report findings were gathered from food retailers in the US and Canada and are designed to summarize what issues concern retailers most and what they perceive to be opportunities for growth. A total of 101 food retailers and wholesalers representing about 33,300 stores participated in the online and offline survey.
Topics were under the headings of macro environment issues; competitive environment issues; customer outreach; operations; and financial performance.
Part of the survey that Sarasin said was previously referred to as the “worry index,” was renamed the “food retail pulse,” this year to reflect the positive aspects of the responses as well as the negative ones. Included in the concerns category in the survey were cost factors challenging retailers, including health care, interchange fees and energy costs.
Other concerns were more obvious. “Competition continues to affect sales and profits,” Sarasin said, but competition now includes not only traditional competitors in the market, but online and other non-traditional players in the space. Personnel issues, including wage pressures, recruitment and retention also were prominent issues among respondents.
In terms of optimistic sentiments, respondents reported there are growth opportunities under the health and wellness banner and in how consumers use food as medicine. Responding companies also reported that local and national economic factors as well as demand for transparency among consumers as having a positive impact on retailers’ revenues and profitability.
Rising health care expenses, which represented about 2.1 percent of respondents’ sales, were handled in a variety of manners, including retailers absorbing all of the higher costs (51 percent); increasing employee premiums (49 percent); and 30 percent offset increased costs by redesigning plans and still others (15 percent) altered eligibility requirements. Approximately 69 percent of respondents reported expecting the costs to increase again in the coming year.
When it comes to payment methods, debit cards accounted for 36 percent of purchases while credit cards were swiped for about 32 percent at checkout, according to the survey. The amount of fees charged to retailers for these transactions varied, with larger companies paying lower fees in general.
In terms of issues that divided respondents’ opinions, the changing ways of meal consumption and snacking was perceived as a positive development by 50 percent of retailer respondents, while 35 percent saw this as a negative trend. Another divisive issue was the impact of changing consumer demographics, as 35 percent reported this as a positive and 30 percent viewed it as a negative development.
Macro issues were also addressed by the survey. In general, industry consolidation is expected to continue (according to 52 percent of retailers), inflation is expected to remain low and continue to pressure margins (according to 24 percent of respondents) and regulatory pressure is expected to be low. Transparency and waste reduction are two areas retailers reported as being their most common initiatives. “Food retailers understand that shoppers may be focused on products and ingredients, but they also recognize that their customers are increasingly assessing retailers’ social efforts as well,” said Sarasin.
Among those efforts, food waste reduction is top of mind among retailers, as 65 percent reported having goals and timeframes for reducing food waste. Product transparency (60 percent) and diversity in hiring (61 percent) were the next most common social efforts being implemented by retailers in the survey.
In addressing competitive issues, the food retail pulse addressed the impact of online sales and technology, including the use of apps. About 40 percent of respondents predicted their online sales to increase and despite the use of apps to comparison shop, 25 percent of retailers expect basket sizes to increase.
And while widespread competition from an array of retail formats are grabbing a share of the food dollar, food retailers still consider conventional supermarkets and supercenters as the primary competitive formats having the biggest impacts on sales and profits. In the survey, 44 percent of respondents considered conventional supermarkets to have the biggest impact, just ahead of supercenters, at 38 percent. Competition from specialty stores like Whole Foods and Sprouts were also top of mind among 24 percent of respondents, followed by club stores (19 percent). Sarasin noted the increasing competition, which includes online sales by brick and mortar stores and online sales by non-food retailers, have the attention of retailers. “This area provides one of the largest challenges affecting their sales and profits negatively,” she said.
Online sales trends, while representing as little as 3 percent of total sales, warrants retailers’ attention moving forward. Online transactions potentially bode well for retailers with a weekly average of 2,200 of them averaging sales of $116 versus in-store average purchases of about $35. Hindering the growth in this segment, according to the survey is the limited level of sophistication in e-commerce transactions.
Just 2 percent of retailers offering online sales consider themselves to be very sophisticated in selling products using this platform while almost 50 percent of respondents said they are “not very” or “not at all” sophisticated. “There’s much more to be learned about this new shopping style,” Sarasin said.