The latest figures from the Australian Bureau of Statistics (ABS) show that retail turnover across supermarkets continued to remain at higher levels throughout August when compared to the same month last year.
Annually, Perishable goods rose 14 per cent, Non-perishable goods were up 12.5 per cent, while All other products, i.e. non-food items such as cleaning products and toiletries, lifted by 11.1 per cent.
“The higher levels of revenue reflect a continuation of more food being prepared and consumed at home due to social distancing,” the ABS report stated.
Now, many larger retailers are looking at getting in on the action.
Perishables vs non-perishables
This month, discount retailer The Reject Shop began selling pantry items in stores as part of a partnership with British supermarket giant Tesco.
The range includes home essentials such as oil, vinegar, rice pouches, snacks, cleaning and baby products.
While certain non-perishable products, such as canned foods, confectionery and long-life milk, have been commonplace in discount department stores such as KMart and Big W, most have shied away from Fresh. Those that have, have gone all in.
David Jones has been the most notable Australian department store to edge in on the grocery market. In recent years the retailer has opened food halls in its department stores in Sydney, Melbourne, Adelaide and Perth. Last year it launched its first standalone food store in Melbourne and began rolling out convenience stores at fuel stations in partnership with BP.
However, David Jones’ South Africa-based owner Woolworths Holdings announced in September that it is reviewing the recently expanded Food brand in an attempt to recoup losses. While the roll-out of David Jones Food convenience locations is progressing well, the larger format David Jones Food business is trading at a loss.
Catering to the top up shop
Retailers in the US have shown the benefit of a grocery add-on rather than a large scale food hall which requires major investment, floor space and resources.
Target has been building on a fresh grocery offering since 2011, last year launching its own grocery brand Good & Gather, and investing heavily in online.
In September, the retailer added a furter 750 products to its grocery offer bringing its total to about 2000 items, still significantly less than the 40,000+ items seen in an average US supermarket, according to Market Watch.
The smaller offer offers consumers speed and convenience when topping up their trolley with some essential items.
Target chief operating officer John Mulligan said the grocery range helps those looking for “easy and safe ways to shop during the pandemic”.
“During a time when even more people are looking for different ways to get the items they need, we’ll continue to invest in making Target the easiest and safest place to shop,” he said in a statement.
The pandemic has changed shopping patterns at Target. The retailer reported that customers bought less apparel and more groceries during the first quarter. Food and beverage sales grew by more than 20 per cent and apparel sales dropped by about 20 per cent during the same period.
Why grocery? Why now?
Dave Clements, global head of retail at Dunnhumby and a former director of both marketing and e-commerce at Tesco, told Inside Retail that businesses selling grocery will continue to benefit from the lessening demand in hospitality and restaurants.
“Food to go and “fake-aways” have grown in supermarkets as customers realise they are a valuable alternative to the normal take out. We see examples of many retailers now doing meal delivery service partnering with last mile solutions such as Doordash, Rappi and UberEats,” he said.
Hospitality brands are also expanding their offer in grocers selling their products on grocery shelves and even introducing food to go prepared on site in grocery stores.
Clements said many retailers will be aware of the value-add that a fresh grocery offer could bring to their stores.
“The resurgence of grocery also makes it attractive for other retailers – such as department stores; big box general merchandisers; pharma, health and beauty retailers to offer a grocery range,” he said.
“More drug and pharmacy stores are expanding their grocery range especially in healthy impulse, and food for now grocery areas; and more convenience stores are catering for the full shop and fresh baskets.”
Clements said the key to success is understanding the existing target customer and the specific missions they are looking to complete in grocery e.g. a full shop, food for tonight or simply a top up.
Are Australian retailers likely to get on board?
QUT professor of marketing and consumer behaviour researcher Dr Gary Mortimer recalls that some of Australia’s big retailers had catered to grocery shoppers in the past.
“Myer once had a substantial food and grocery offer and both Big W and Kmart had large areas set aside for cartons of soft drinks, nappies, baby formula, baby food and toiletries,” he said.
“However, most have moved away from this strategy, instead focusing on their core business.”
The danger for a discount store like Big W is that a larger grocery offer could cannibalise sales in the Woolworths business, Mortimer noted.
“Kmart might consider a food offer, now that Coles is no longer associated with Wesfarmers, however any extra categories may dilute their already successful offer.”
Mortimer said The Reject Shop’s strategic alliance with Tesco, works well in this instance.
“As a standalone discounter, it is not competing against an ‘owned’ grocer – instead, they are competing against other food discounters, like Aldi.”
Waste is another big risk retailers must consider when exploring the potential of fresh grocery.
“Food, unlike clothing and home furnishings, is incredibly perishable. So, unless the department store can ensure high stock turnover, there is an inherent risk that waste will increase and erode margins,” he said.