With Australia entering its first recession in almost three decades, the shocks of Covid-19 continue to be felt in many households, as official figures show the economy has shrunk by 7 per cent – the sharpest quarterly fall on record.
Undoubtedly, the health pandemic has upended Australia’s retail landscape, but I would argue that many of these changes have been on the cards for quite some time.
This year, there has been a tremendous shift to online grocery retail in the majority of markets. However, most industry experts would argue that this change isn’t at all ‘surprising’, it has simply been accelerated. Further, many retail sectors have actually benefited from stay-at-home restrictions and the situation we find ourselves in: homewares, hardware, and grocery, to name a few.
While we may not have a crystal ball to show us what the future will look like for Australian retailers over the next couple of months – and even years – we can always look to the past. History is destined to repeat itself. So, what can retailers learn from previous recessions and financial crises?
Golden opportunity for grocery
At Dunnhumby, we work with a number of leading grocery retailers and consumer brands across more than 30 different countries, including Australia and New Zealand. In all of these markets, grocery retailers have experienced an uptick in sales as a result of more time being spent at home and in some cases, panic buying.
Consumer feedback has been positive and the extraordinary actions many major retailers have taken these past couple of months have been well-received by the public. For instance, Woolworths’ appointment of a Medical Officer to shape its ongoing response to the pandemic shows the retailer
is not only listening but also investing in the health and safety of its customers.
While there is an opportunity for grocery retailers to capitalise on changes in behaviours brought on by the pandemic, and to build future loyalty in the process, it is important not to become complacent. Analysing and understanding customer data is key to offering a value proposition that appeals to the changing attitudes of Australian shoppers. Grocery retailers must ask themselves: are we collecting the right data? Are we in tune with how our customer base is feeling at any given time, and are we responding to these needs accordingly?
Then versus now: the similarities and the differences
A customer-first approach will ensure retailers remain one step ahead as they plan and execute their business strategies now and into next year – from pricing to promotions, range, assortment, personalised offerings, communications, private labels or the shopping experience itself. It may also be helpful for retailers to analyse customer shopping behaviours and attitudes during previous financial crises, and apply these learnings when faced with similar challenges during the Covid-19 pandemic.
1) The rise of private brands: During previous economic downturns, private grocery brands gained preference as finances were impacted. Consumers tend to opt for private labels over well-known brands as they become more conscious of price and value. Recently, EY’s Future Consumer Index found that 58 per cent of consumers are considering buying private label products.
Private brands are more established this year than they were during previous financial recessions. This presents an opportunity for grocery retailers to pivot towards private brands that typically offer greater margins and better value perception.
2) Shift to ‘at home’: Unsurprisingly, when people have less disposable income and financial security, there is a shift away from fine and casual dining, as well as takeout. The Covid-19 crisis is no exception. Add to these continued restrictions around restaurant capacity and it is predicted grocery retailers will continue to benefit from the ‘at-home’ trend well into the new year. Dunnhumby research shows there has been a willingness to spend more on personal care, health and wellbeing products too as Australians are stuck at home and looking to spend more on self-care.
3) Shopping less, spending more: Over one third (38 per cent) of Australians say they are spending more per trip, which points to bigger basket sizes and the continued trend of eating at home. Consumers are also making fewer visits per week and 57 per cent are shopping at fewer stores, choosing instead to buy everything from the one retailer. This may be because of the health risks associated with shopping around but also a tendency to support local and independent grocery stores. These trends are very different to past financial recessions. Fewer visits mean that total basket value, product varieties, personalisation and in-stock levels have become even more critical for retailers to drive traffic in-store.
4) Shift to e-commerce: During past economic crises, ecommerce has been in its infancy. This time around, many Australians have turned to online shopping and e-commerce not only for the convenience, but also to minimise the perceived health risks of shopping in stores. At the height of the outbreak, major retailers like Coles, Woolworths and IGA for instance, offered priority assistance to elderly or immune-compromised shoppers and healthcare workers through additional online grocery deliveries and access to products outside of normal shopping hours.
5) Household budgets under pressure: As with any financial crisis, consumers are feeling anxious about the future and are likely to be more conservative with their spending habits. Severe lockdowns and social distancing restrictions over the past few months have caused many people to either have their working hours reduced or to lose their jobs. Unlike the Global Financial Crisis in 2008 or even Australia’s last official recession back in 1991, however, the Federal government has invested billions of dollars into stimulus packages like JobKeeper as it has struggled to stem the ‘economic bleeding’ when faced with the competing health and business priorities of a pandemic. According to the Australian Financial Review, a record $48 billion in government stimulus drove 2.2 per cent growth in household income in the June quarter – this is despite more than a million
Australians having lost their job or working zero hours during that time. The overall increase in household income translated into more spending on groceries and other essentials in the short term. In the long term though, unemployment will likely continue to increase and household spending will contract when government assistance ends.
It’s the perception of value that matters
As Australians feel their finances stretched amidst weaker economic conditions, increasing unemployment rates and rising costs, it’s no surprise that customers are looking for a good deal. Our research revealed that 35% of Australians have already noticed price increases when it comes to their weekly grocery shop, with 37 per cent feeling as if their money isn’t going as far as it used to. This indicates the strain on household finances and the reason why customers are paying closer attention to prices.
Across all global markets, value perception is top of mind and in particular, the use of customer data science to provide a competitive edge. Using data to understand which categories are performing well and which levers to pull to drive purchasing behaviours and price optimisation will allow retailers to offer fewer, but far more effective, promotions.
Food inflation, supply chain issues and various economic indicators have no doubt impacted the price of certain grocery products this year. If retailers are upfront, transparent and communicate these changes effectively however, taking all of the extraordinary steps needed to keep their employees and community safe in the process, customers will understand these changes.
During Covid-19 and the similar financial crises that have come before it, the onus is on Australian retailers to show empathy and support for their customers, all while shifting the idea that value is tied directly to low cost.
David Clements is the Global Retail Director of Dunnhumby.