Labour and inflation issues will test food retailers in 2022. But there are also growth opportunities. Having a clear online strategy appears to be a key driver behind sales growth. Is it enough to keep afloat with so much market and supply chain uncertainty? What other strategies do successful food retailers employ? A-INSIGHTS analyzed the financial data of the top 65 players in the industry. Read our insights here.
Financial data can reveal a lot about the performance of an industry. By benchmarking that data, it is possible to identify value-adding strategies in terms of growth and profitability. In our report, we analyzed the performance of the largest players in the food retail industry, focusing on net sales growth (CAGR) and profitability (EBIT).
COVID year 2020: pandemic favours retail, trend toward online sales increased
The retail sector recorded average sales growth of 4% between 2017 and 2021, while average EBIT margins were 2.6%. The fact that retailers mostly stayed open during the pandemic was visible in COVID year 2020: the sector grew by 5.1% on average and EBIT margins increased slightly (2.7%). Before COVID, online sales were already growing, but this trend intensified during the pandemic. Traditional retailers now face the challenge of coping with a changing competitive landscape and a disruption in supply chains and prices. With no indications that conditions will improve soon, the question arises: how are key players addressing these challenges?
E-commerce trends are forcing traditional retailers to innovate
With the surge in demand for at-home delivery, the competitive landscape is changing. The convenience of having groceries home-delivered has helped Picnic to almost double its sales in 2020 compared to 2019 (from € 232 million to € 455 million). Hello Fresh, which adds value by putting together the ingredients for a meal, also report high growth numbers. The company started to make a profit in 2020 and also reports strong margins in 2021. Players in the fast delivery field, such as Gorilla's and Getir are also reporting very strong growth.
Traditional supermarkets are forced to adopt an online strategy with a focus on delivery services. Some traditional retailers respond with different sorts of collaborations. For example, Jumbo is collaborating with and has taken a stake in rapid-delivery service Gorilla’s. Edeka has recently increased its stake in Dutch online supermarket Picnic, with the of the board member of the German group now also being a board member of Picnic. In short, our data shows that retailers that have a clear online strategy have also shown stronger sales growth in recent years.
Players like Kesko and John Lewis have a strong digital strategy, which proves to be necessary to ensure long-term sales growth. Other players opt for collaborations with emerging digital players to ensure a place in the growing digital landscape.
Consolidation and economies of scale: other growth drivers for major retailers
Other drivers of growth and profitability – scale and consolidation - can be observed across different value chain links. For example, Rewe was one of the fastest growers in 2020, with net sales growth of 23.2% compared to the previous year. Most of this growth can be traced to the acquisition of Lekkerland in 2019, with which Rewe strengthened its position in convenience and on-the-go shopping. Moreover, companies that outperform the market are generally larger conglomerates, under scribing the importance of scale. There are multiple reasons for the importance of scale in the retail landscape. But in a changing landscape, scale will be the key to building e-commerce and developing key concepts to differentiate.
In summary, players who adopt a clear online strategy based on customer convenience, a smooth shopping experience and omnichannel strategies seem to be winning the market. Moreover, creating value in partnership with suppliers and reorganizing the food supply chain to enable continuity and sustainability seem to be winning value-adding strategies.
Curious about the trends in the evolving food retail landscape?
Find out more about the performance of key players in food retail and the trends and developments within the industry in our trend report. Download the report below.