Strategic drivers of global leading retailers

We recently published reports covering the leading grocery retailers in Europe, North America and Asia. This article summarises some of the key strategic drivers of leading retailers globally and how they compete.

Providing greater value

Periods of high inflation across global markets has resulted in price conscious shopper bases, driving leading retailers to make delivering value to shoppers a key part of their strategies.

There continues to be significant investment in price, with the leading retailers able to use their economies of scale in negotiations to control cost prices and protect margins. European retailers take this a step further, with six of the leading 10 retailers in the region being members of retail alliances which enables them to increase their purchasing power.

Complimentary to price is promotional activity, with the leading retailers increasing the range and aggressiveness of promotional campaigns to maintain market share. Communicating value to shoppers by utilising in-store assets and external platforms has become essential, reminding shoppers throughout their journey that they are saving money.

Promotions have changed quite significantly as loyalty schemes have been introduced by leading retailers. App based schemes are needed to access many promotions across stores and we are seeing personalised promotions being added, a great way to encourage repeat visits by offering shoppers savings on the products they frequently purchase.

Private label development has enabled the leading retailers to provide cheaper products with quality comparable to brands, allowing shoppers to trade down and save money. Europe leads in private label penetration, although North American and Asian retailers continue to grow their private label range to cater to value-conscious shoppers. Focus will turn to mid and premium-tier private label ranges, as retailers aim to increase shopper basket spend and attract shoppers to products where they have better control of margins. Private label also provides them with flexibility, to evolve categories and keep up with the latest shopper trends.

Expanding presence

Expansion, be it by expanding the store network or even venturing into new markets or channels, is the most tangible way for retailers to grow.

Network expansion is a major growth strategy amount many retailers in Asia, as large amount of rural and suburban areas provide much untapped areas for convenience retailers such as Meiyijia to expand their network. In a North American continent with low population density, retailers like Dollar General headline store network growth to better target rural and neighbourhood locations. Meanwhile in Europe which generally has higher store saturation, network expansion is not a key strategy for most. However, discounters like Aldi Nord & Sud are expanding rapidly to cater to growing demand for value.

Overseas expansion is another way for retailers to further grow their banners and expand their presence. This is especially useful for retailers in mature markets. For example in Japan, a declining population and slow economic growth hampers the long term growth prospects of its grocery retail market. Various retailers have expanded internationally, particularly in large markets of East Asia and high growth markets of Southeast Asia.

Evolving shopper behaviour over time is also influencing the way retailers compete as they strive to stay relevant to the current and future needs of shoppers. This has led to innovation in different formats and expansion into new channels including convenience or online, to better meet these shopper needs and missions.

Growing omnichannel

Globally, retailers continue to invest heavily in elevating their omnichannel experience. Retailers that are further ahead, have realised that having a well-executed omnichannel proposition is a powerful loyalty driver.

In the not-too-distant future, shoppers will start to expect retailers to offer them a seamless omnichannel experience. Customers who value convenience will become more loyal to retailers that can offer them a plethora of pick up and collection options, including home delivery, express delivery, quick commerce options, and click-and-collect options. They will also expect a digital user experience that is perfectly optimised across different devices i.e. laptops, tablets and mobile devices.

Online profitability continues to be a major challenge. To reduce the cost-to-serve, retailers with large store estates are using their stores as online fulfilment hubs, helping them to improve delivery speeds and reduce the cost of the last mile. Subsequently, their stores need to be adapted to support both in-store shopping and online fulfilment. Some retailers are repurposing areas of their store to increase the space dedicated to sorting, staging, and prep. With online sales expected to grow, these retailers are setting themselves up for a more omnichannel future. Retailers also see the opportunity to reduce operational costs by fine tuning the efficiencies of their click-and-collect services, by embedding more tech and AI.

We expect to see an increasing number of touchpoints, both physical and digital, being used to target customers with advertising. Retailers continue implement more in-store retail media, they may soon start to look for ways to encourage customers to use app’s more in-store (linked to their loyalty programmes), which could enable brands/retailers better understand the impact of digital in-store marketing. This will create more opportunity for brands to send targeted personalisation at the point of purchase, whether that be online or in-store. Marketing campaigns will need to be omnichannel for consistency and to land with maximum impact.

We are starting to see more integration of the digital experience in the physical store environment. Such as retailers implementing digital ordering kiosks in-store or adding codes on product displays to encourage customers to browse and order from their wider online assortment and/or marketplace.