How will channel growth shift post-COVID-19? … and other questions
We’ve been hearing similar questions recently from our customers and contacts across the FMCG industry.
How will shoppers shop? How will channel growth shift? How long will the crisis last for my business? How are other businesses reacting? What can I learn from past economic crises?
Adjusting your business strategy to this new environment will become more complex as you consider multiple hypotheses. In this piece, Milos looks at these five key questions and examines some possible scenarios.
1. How will channel growth shift?
We model market size growth for number of countries in three scenarios.For the UK market we forecast growth in the range of 5.0% - 6.2% in 2020, following a 1.1% increase in 2019. The length of social isolation will directly impact the growth of the UK grocery market and individual channels.
Convenience and supermarkets will gain the highest increase in value. Online and convenience will be the fastest growing in all three scenarios. They will show the biggest percentage growth.
In the most severe scenario (lockdown lasting until the end of September), discounters’ revenue growth will be negative year on year.
Social distancing has hit discounters’ growth
We expect a bigger shift in shopper behaviour the longer social distancing remains in place, and the more frequently it’s reintroduced. The channels shoppers use could change significantly in the next year, particularly during a deep economic recession.
Part of many suppliers’ strategies, discounters had not been winning during the pandemic. In the first quarter of 2020, across Europe shoppers shopped less frequently and with bigger baskets. They visited local stores, stores with full assortments, and ordered more groceries online. This had a negative impact on the growth of the discount channel.
Discounters’ growth varies across markets
The discount channel is my speciality; I have been researching it for many years. I have seen dramatic growth as discounters gained market share and became a more mainstream part of the food retail landscape.
However, in the UK, convenience stores, independent stores and supermarkets grew faster than discount in value terms up to the end of April. Indeed, Sainsbury’s and Tesco’s sales grew faster than Aldi and Lidl in the last eight weeks to 22 March 2020. Aldi, which outperformed Lidl in terms of revenue growth in the last couple of years, grew significantly slower (8.8%) than Lidl (14.8%) in the 12 weeks to 19 April 2020 (source Kantar).
In Germany, supermarkets’ and large stores’ revenue grew faster than discounters in February and March 2020. Gfk reported a 14% sales growth in supermarkets and large stores in March 2020 whereas discounters grew by 13%.