- To protect revenues and margins, both manufacturers and retailers need to adapt their business models to operate in an inflationary environment.
- Personal tags affect how customers perceive a particular network in terms of price, and can also help increase the recognition of a given network and strengthen its customer loyalty.
- There is an upper limit on the share of private labels that are different for different product categories.
- From a customer’s point of view, online shopping with home delivery is a very attractive value proposition, and players face the channel’s economy – the damage is often very difficult to compensate for.
- Digitalization is critical to creating a competitive advantage. Especially now, at a time when the macroeconomic situation is becoming increasingly demanding.
Inflation is accelerating
Economists predict that food prices may rise in double digits this year. In addition, there is an atmosphere of uncertainty about the war in Ukraine. How will this affect the wealth of Poles and their tendency to save?
Research shows that at the end of last year, consumers feared a rise in prices, and the start of the war in Ukraine exacerbated these fears. Therefore, the consumer mood is not the best and so far there is no factor that can change it.
Rising inflation, along with rising uncertainty, has already had a negative impact on demand for durable goods such as home appliances, electronics and furniture. On the other hand, due to the influx of refugees from Ukraine, the number of consumers in Poland is growing and the demand for basic goods is growing. As a result, leading retailers have seen an increase in turnover since the start of the war. If Ukrainian citizens find work in Poland and have a steady income, trade will undoubtedly benefit.
What can retail chains do to prevent revenue and margins from declining?
The increase in the prices of raw materials and products is usually not fully transmitted to customers. Therefore, in order to maintain revenues and margins, both manufacturers and retailers need to adapt their business models to operate in an inflationary environment. This means that they need to be more flexible, monitor costs more closely and constantly analyze consumer behavior. Now decisions must be made quickly and no mistakes can be made. Therefore, networks need to be more flexible and use more data analytics in areas such as customer behavior, competition, suppliers or raw material markets. Networks, for example, can act quickly and proactively to change the product range or price position accordingly compared to the competition.
Their brands are rising
How important are personal labels to retailers?
Personal labels are playing an increasingly important role in the sales strategy of retail chains. They are no longer cheaper substitutes for branded goods, but a tool to expand the product portfolio. This includes the popularity of goods sold under its own brand, which determines the market success of discount chains in the Polish market.
Personal tags affect how customers perceive a particular network in terms of price, and can also help increase the recognition of a given network and strengthen its customer loyalty. In addition, by strengthening personal labels, retail chains can improve their negotiating position against suppliers and further diversify the supply chain.
Are we facing a situation where personal tags will be the main driver of the chain’s revenue growth?
At present, the share of personal chain labels in the shopping basket of Poles is reduced to around 20%, while the European average exceeds 30%. Thus, there is room for development in Poland. Already during the pandemic, new customer groups have turned to privately labeled products. Customers were convinced by these articles that their quality did not differ from the quality of branded products, and their advantage was a lower price.
As customers are more sensitive to price and branded products may run out due to supply chain disruptions, the chains will give additional impetus to the development of private labeling. However, there is an upper limit on the share of individual labels, including different product categories. due to the presence or absence of leading local or international brand manufacturers.
Discounts are on
Which retail chains can benefit most from this situation?
At a time when customers are sensitive to price, discounts are a natural advantage today because they look like stores where customers can save money. However, a well-conducted pricing and assortment policy along with marketing campaigns may indicate that other formats may benefit from the current situation.
Can comfort chains like kaabka expect sales to decline?
I do not think so, because convenience chains, for example, except for discount stores or hypermarkets, mainly meet the needs of customers. The so-called impulsive shopping or ready meals are different from the shopping planned for the whole week. In addition, leading comfort chains in Poland have created formats that Poles like, and inflationary pressures alone are unlikely to reverse the growing popularity of this format.
Electronic grocery store
Will the suppression of the pandemic mean that the delivery service in the food segment has lost so much importance today?
During the pandemic, food chains intensified their online sales. This was expected first by customers who started using this form of shopping for fear of pollution, and then for convenience. Customers are accustomed to online shopping and, under the influence of positive experiences, declare that they do not want to rely only on brick stores.
From a customer’s point of view, online shopping with home delivery is a very attractive value proposition, and players face the channel’s economy – the damage is often very difficult to compensate for. However, I would not expect the online channel to grow rapidly in food retail, only due to the so-called significant difference. online penetration in Poland compared to other developed countries.
Digitization is a customer relationship
In this situation, what is the importance of digitalization for retail chains?
Digitalization is critical to creating a competitive advantage. Especially now, at a time when the macroeconomic situation is becoming increasingly demanding. The use of digital tools allows you to better understand the customer and build a close relationship with him. With the use of software and data, networks can adjust their range faster and better, set prices, and control profitability.
IT systems are also invaluable for resource allocation and replenishment. Networks are aware of this and are increasingly using the capabilities of modern technology to change their business model and increase revenue. And it’s not just the e-commerce segment. As an example, Carrefour recently announced that it wants to move from traditional retail to digital retail by 2026.