Irish grocery 2023: Where to next?

The start to 2023 has been a tumultuous one for the Irish grocery sector; rising food inflation linked to a multitude of geo-political issues threatened to undermine the goodwill and consumer engagement nurtured during Covid19 and the Brexit aftermath.

As the price of food became a political issue across Europe, Irish grocers found themselves in a public debate concerning the level of profit margins (and accusations of profiteering) across the sector This debate was driven by perception as opposed to hard evidence – the reality being that the Irish grocery sector is very competitive and underpinned by a complex, inter-connected supply-chain.

As always, context is important - Irish grocery inflation was c17% compared to an EU average of 27% over the last two years. The Irish grocery and convenience market is unique given that a significant proportion of market share is held by indigenous, family-owned retailers operating under symbol group brands. Bank of Ireland data confirms that the profit margin generated by these retailers over the past year has remained consistent with historical performance whilst maintaining significant employment and investment in local communities nationwide

The Irish grocery and convenience sector is recognised internationally as an exemplar in respect of store standards and innovation. It is a “go-to” destination for international retailers seeking ideas to improve their own proposition. As consumers, we have become accustomed to excellent, in-store standards – to maintain these standards, family-owned retailers need to preserve their margin whilst maintaining a continuous improvement mindset. In this fast moving, competitive environment some of the key areas of focus for the sector in the next 12 months are as follows:

Own-brand expansion

Recent studies across Europe have demonstrated that saving money on food remains a top priority across all income groups. This has led to increased engagement with own-brand products and a discernible improvement in own-brand range/options across the sector As consumer confidence (hopefully) improves in the coming months –the delivery of premium, healthy and sustainable products across the own-brand range will be required to meet customer expectations and preserve retailer margins. The normalisation of food inflation, linked to a significant decline in international food commodity prices in recent months, (based on historical evidence, food retail prices adjust to changes in commodity prices with a time lag of about six to twelve months) will support this product development agenda in the latter half of 2023.

Personnel development

The acute shortage of personnel is a critical issue for the sector at present. It has prompted a dual-approach from progressive retailers –the development of flexible/proactive employee development plans incorporating up-skilling/management opportunities and increased automation of manual intensive tasks. The use of electronic shelf labels, selfscan checkouts and smart rostering systems can be instrumental in driving a better work/ life environment when balanced appropriately with maintaining the customer service values of the business.

Margin tight rope

Grocery retail is a high-volume, low margin business with leading European grocers reporting a EBIT (earnings before interest and taxation) percentage of c3% on average in recent years. When compared with the leading Consumer packaged goods businesses (Nestle, Coca Cola, Unilever etc who average EBIT percentage of c19%), the game of brinkmanship that is margin management becomes even more apparent. Store revamp/ investment can be a key component within this strategy – fulfilling customer expectations, preserving margin and driving overhead efficiencies. Bank of Ireland data suggests that when delivered effectively – a store revamp can drive sales growth of 5%-10% and margin growth of c1%.

Automation investment

Consistent with the wider European model, the digital transformation of the Irish grocery sector has been fragmented to date leading to cost/operational inefficiencies and delays in the delivery of improved supply-chain, analytics and omnichannel models across the sector Retailers recognise that appropriate investment in this area is a key step in preserving profitability – ensuring that investment can be continued in the traditional areas of personnel, store design and product offering. It is akin to the nutritional, gym and flexibility work undertaken by elite sportspeople – unseen by most but integral to maintain peak performance.

Sustainable businessScope 3 focus

Irish retailers are cognisant that a robust strategy for the de-carbonisation of their business model is required to meet Government, investor and consumer expectations/requirements into the future. Studies have identified that c90% of all emissions related to retail are Scope 3 – linked to suppliers/consumers as opposed to direct emissions from the business itself/purchased energy (Scope 1 and 2). To move the dial on Scope 3, retailers are starting to establish joint initiatives and incentivisation plans with their suppliers to support improved emission targets and the sharing of related data. In respect of consumer engagement – apps/tools that support customers to set and monitor climate targets for their shopping baskets are also on the horizon.

The Irish grocery sector is in perpetual motion and family-owned retailers in particular need to embrace change/innovation to meet customer expectations in a competitive environment. As David Bowie said: “Tomorrow belongs to those who hear it coming”. In embracing the above areas – retailers will position themselves to be on the correct wavelength for future growth and development. ■