Inflation prompts words of warning from IGD at the Co-op Retail Conference

'The recessionary mindset is still there. People are uncertain about their jobs and the future'

A standing feature of the UK’s Co-operative Retail Conference, organised by Co-operatives UK, is sector analysis from the Institute of Grocery Distribution (IGD) – and this year, insight manager Dan Gillett presented a gloomy outlook.

High inflation “has had a massive net effect on shoppers”, he warned, with prices expected to be 26% higher at the end of 2023 than in 2021. And these high prices are here to stay: the impacts of climate change on agriculture, the recovery of Ukrainian supplies and continued disruption from Brexit. “Because of this,” said Gillett, “the challenges for retailers and changing shopper habits are also here to stay.”

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Shopper confidence remains exceptionally low and that affects all shopper behaviours, he added. “We avoided a recession by the skin of our teeth, but we’re still talking about it, and the recessionary mindset is still there. People are uncertain about their jobs and the future”.

Based on non-discretionary spend, the median household is £3,700 worse off this year. “Last year we were talking about the energy crisis and mortgages as the biggest drivers. This year, it’s food.” 

But, Gillett said, it’s not all doom and gloom for co-op retailers – most of which operate in the convenience sector. “Convenience retail – along with the discounters – is forecast to be one of the big winners over the next few years as shoppers change the way they interact with retail.”

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Shoppers are sticking to tighter budgets, meal planning more and doing less impulse shopping. And while convenience stores may have higher prices, “they don’t have the overwhelmingly huge choice found at superstores, so people actually spend less”. Shoppers still largely consider ethics and freshness as important, “but price and availability are becoming more important”. Saving money also extends beyond the food itself, with households changing cooking methods – or eating more cold foods – to save energy.

Parallel to this, consumers spending more on high-quality ingredients to cook at home and spending less at restaurants. “Eating out will become a treat for most – so you have the opportunity to create out-of-home experiences at home,” said Gillett. 

Co-ops have more reward and loyalty scheme competition as shoppers search for savings and offers, and there is also increased sector competition, with “Asda and Morrisons entering convenience retail in a big way”. 

Gillett also noted the changing nature of online retail: the presence of convenience retailers on apps such as Deliveroo encourages people to browse, he said. “We then see people then walking to the stores to avoid paying the delivery fees.” People are still doing ‘big shops’ online, but IGD has noted a move away from weekly shops involving fresh food to people buying two or more weeks of ambient, bulk products. 

With so much choice, “shoppers will need a genuine reason to visit your stores,” he said. “Can you provide a reason to visit that other retailers can’t?”

Gillett also warned that “while it might be tempting to slow down investments in areas like sustainability, shoppers will still demand action […] Only 18% of people think it’s their responsibility to buy sustainability; over 50% say the onus is on stores to sell sustainable products. And 78% want more big brands to offer refill options.”

Refill is a huge area of growth, he said, although it was common in the past. “Now brands want to do it, but the retailer needs to demand it. If you don’t give customers that option, they don’t know it’s there.”

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