The Cost-of-living crisis: How are grocers responding?

The UK retail industry, particularly in the grocery sector, has gone through a turbulent period over the past two years, leading to some of the most difficult challenges faced by the industry to date – and that journey is far from over.

Whilst some optimism arose regarding rebuilding the economy following the ease of COVID-19 disruption, the war in Ukraine created a series of supply issues, followed by a sharp increase in energy prices, triggering a cost-of-living crisis across the UK^[1]. Furthermore, inflation remains at the highest levels in 40 years with interest levels also at a 15 year high, leaving consumers very reluctant to spend money on anything they deem non-essential. A combination of unfortunate economic circumstances, changing consumer purchasing behaviour and the inability to draw on previous expertise has left many grocers with their fingers in the air when considering next steps to take.

Despite the rapid pace of change, grocers are quickly adapting to the new economic climate and learning to adjust their strategies based on evolving consumer purchasing habits. Here are a few examples of the ways in which they have adapted:

1. Customers seeking value

In the grocery sector, discounters Lidl and Aldi emerged as the winners of Christmas by a leading mile, with consumers seeking value for their money and opting for own-brand labels during the festive period^[2]. Despite the economy slowly recovering coming into the new year, many families are still feeling the effects of the cost-of-living crisis and are looking for ways to stretch their budgets as far as possible.

It is clear to see that other retailers are latching onto this concept with more grocery giants looking to switch and/or remove products to make way for own-brand labels. Waitrose “cutting their range by 5% as it ditches big brands”^[3], Sainsburys “investing over £550m by March 2023 into lowering prices”^[4] and finally, Morrisons “slashing prices across 820 products to help Brits with rising inflation”^[5] in an attempt to entice customers and further cut costs. With the discounters continuing to steal further market share from the big 4, only time will reveal whether the strategy of moving away from well-known brands will be successful or too little, too late.

2. Promoting cost-saving initiatives

It was reported that during the Christmas period of 2022, many citizens in the UK were faced with the difficult decision of choosing between heating or food. However, Grocers came to the rescue by developing budget-friendly solutions to ensure that no one had to go without their basic needs.

For example, Co-op partnered with the Jersey Evening Post to promote affordable recipes created by local chefs, all using ingredients that cost less than £5 and consisting of both Co-ops honest value and own brand products^[6]. Likewise, Aldi created a new ‘Amazing Savings’^[7] page to give customers tips on how to save money, including £1 meal ideas and upcoming grocery deals. Finally, Asda took it a step further by offering a free warm breakfast to children during the February half-term holiday, in partnership with Quaker Oats, with the aim of dishing out at least 50,000 bowls across the week^[8].

3. Investment in technology

The third way that grocers are reacting to the cost-of-living crisis in an attempt to remain competitive is by investing in technology. Automation of the entire end-to-end supply chain has created long-term visibility for retailers, allowing enhanced demand planning and forecasting abilities as well as improved inventory management. The switch to digitalisation and/or artificial intelligence solutions has enabled retailers to process complex information in much larger quantities and at a much faster pace, which in turn helps to better manage their supply chains, reduce waste and increase operational efficiency. On the flip side, with increased automation comes less desire for white-collar workers to complete mundane tasks, as it’s seen as an unnecessary expense when a machine can perform the task more efficiently and to a much higher standard.

The UK grocery retail industry has faced significant unforeseen challenges due to the cost-of-living crisis. Nevertheless, retailers have demonstrated their resilience and resourcefulness in response to addressing this issue. By adapting their approach, expanding their own-brand offerings, responding to changing customer needs, and incorporating technology, retailers have managed to remain competitive and meet the needs of consumers, despite the challenging economic climate. However, the future remains uncertain. Retailers across the industry will need to continue to be innovative, reduce expenses, and regain trust by putting the customer first to achieve long-term success.

^[1] https://news.sky.com/story/cost-of-living-crisis-how-the-war-in-ukraine-is-eroding-living-standards-in-the-uk-12568365

^[2]https://www.standard.co.uk/business/aldi-lidl-supermarkets-christmas-cost-of-living-kantar-b1050741.html

^[3]https://www.retailgazette.co.uk/blog/2023/01/waitrose-mornflake/#:~:text=Waitrose%20has%20scrapped%20a%20porridge,living%20crisis%2C%20The%20Telegraph%20reported

^[4]https://www.marketingweek.com/sainburys-invest-lower-prices/

^[5]https://www.retailgazette.co.uk/blog/2023/01/morrisons-price-cuts/#:~:text=Morrisons%20has%20slashed%20the%20prices,cost%2Dof%2Dliving%20crisis

^[6]https://www.jerseyeveningpost.com/features/food-drink/2023/01/27/feed-your-family-for-5-or-less-with-our-new-series/

^[7]https://www.retailgazette.co.uk/blog/2023/01/aldi-budget/

^[8]https://www.retailgazette.co.uk/blog/2023/02/asda-introduces-free-kids-meals/