Introduction
Grocery retailing industry consists of supermarkets and grocery stores primarily engaged in retailing a general line of food, including canned and frozen foods, fresh fruits and vegetables, freshly prepared meats, fish, and poultry. Within ten years since 2012, the industry was projected to “grow at a CAGR of 6.8% to reach US$11,204.5 billion by the end of 2022 all factors held constant” (Zielke, Toporowski & Kniza, 2011, p.297). By 2017, the global food & grocery sector had reached US$8,045 billion, an indicator of positive growth in the industry.
Besides, positive economic factors globally-change consumer spending and consumption behaviour, inflation in grocery produce, improved disposable income, increased investment by food and grocery retailers in modern and innovative retail formats, encouraging higher spending per head – have driven sales in this sector. According to the Zameer and Mukherjee (2011), growing urbanization, the decline in the unemployment rate, aggregate double-income households and increasing consumer confidence are among the significant factors that support the growth of food and grocery sales in the world.
Furthermore, the emergence of e-commerce and door to door delivery has widened the product choices and increased the accessibility to various local and global brands. Implicitly, it has impacted physical groceries which have been slow to their product rages and promote them to customers. Kühn, Lichters and Krey (2020) claim that although online grocery retailing remained low at 1.56% (US$130.9 billion) in 2017, sales are forecasted to reach 3.2% by the end of 2022. According to the researchers, retailer investment in response to increasing urbanization and the changing preferences of tech-savvy and time-poor consumers making their purchases online due to convenience and time-saving aspect has driven the rate of growth of online sales. Besides, with the emerging global COVI-19 pandemic, online sales are expected to triple over the next two or three years (Kühn, Lichters & Krey, 2020).
This paper contrasts the performance of the grocery retailing sector in the UK and India to establish the best market for investment. The article will use two supermarkets, the best performing and worst performing both in the UK and India. The study will use TESCO as the best performing supermarket and Asda as the competitor on the lower rank in the UK. In the Indian Market, the research will focus on Reliance Fresh and SPAR Supermarket. Besides, the study will also investigate environmental factors that affect the industry in the UK and India.
Grocery Retailing In the UK
Currently, the UK grocery retail market is in the midst of seismic change, a move that is affecting the way retailers go about their businesses. As the market is driven by the consumers who are undergoing demographic and lifestyle evolution, grocery retailers especially the big four retailers in the UK (Tesco, Asda, Sainsbury’s and Morrison) and retailers in other sectors are having difficulty in adapting to survive and thrive in the industry. According to the Retail Think Tank magazine for the retail sector in the UK, fundamental changes are taking place with prevalent factors discussed and taken into consideration (Retail Think Tank, 2018).
Notably, a few influencers were identified as having the most significant impact on the UK grocery sector. Implicitly, the influencers hold the key to shaping the future of the industry in the UK. Although change can be disruptive, investigations indicate optimism for the future of grocery retailing sector. Some of the researchers claim that “the food and grocery retail sector has been among the best performing sectors in the UK market this year” indicating that such disruptive changes can be managed (Retail Think Tank, 2018).
Factors that Affect the Grocery Retail Sector in the UK
The Rise of the Discounters
The emergence of the discounters has compelled the hand of the big four giants and others in the sector to adapt their offering changing their operations as retailers. Online grocery stores have scooped large market shares from the big four companies leaving them in the verge of decisions to up their grocery retailing game. For instance, Ocado Grocery, Aldi and Lidl are the leading online competitors for the big four. In 2011, Aldi and Lidl had 6% market share, and by the end of 2018 financial year, the companies had doubled the percentage to about 14% (Retail Think Tank, 2018).
Undoubtedly, obtaining a market share of 20% by these discount supermarkets is no longer impossible. When they reach such a level of market shareholding, Aldi and Lidl will be scooping more than £15 billion sales per annum from the traditional market giants. Notably, the rise of discounters has created the new norm for the consumers to shop for a better value product. With the uncertainty in politics and economy, the behaviour of discount purchases will not fade away anytime soon (Walton, Petrovici & Fearne, 2017).
Changing Consumer Shopping Habits
The habits of consumers in the UK are changing and taking a new course. The way people shop in the present generation is very different from their parents. Most food shops have been undertaken in the same way that had been for decades. However, studies show that the present consumers spend about two hours in a supermarket shopping for a weekly food shop. As people shift to online shopping, brand loyalty to specific supermarkets is slowly but surely becoming a thing of the past. Indeed, it does not exist in the mind of the next generation consumers(Kühn, Lichters & Krey, 2020).
Implicitly, grocery retailers have to up their game and ensure they present their offerings and loyalty schemes not according to the old consumer purchase behaviour but according to the new normal presented by the habits and preferences of consumers. Experiential shopping has become acritical success factor in supermarkets. Supermarkets need to draft immersive experiences that compel consumers to choose to spend time in them without which, they can never retain customer loyalty(Kühn, Lichters & Krey, 2020).
Technology
Digital revolution has also been a critical game-changer in the retail industry. Unlike the industrial revolution, the digital revolution is not a long-drawn-out cycle of engineering and construction. Instead, it re-invents itself continually as technology improves. Implicitly, it has compelled retailers to adapt their offering to meet the demands of consumers in terms of convenience, ease of use and customized experience (Larsen & Sigurdsson, 2019).
Furthermore, technology isn’t just about consumers buying products online. The success story of Ocado, an online supermarket, has propelled the grocery retail market to another level. Recently the company established online grocery delivery software and systems to overseas food retailers. As a result, supermarkets should seek ways to incorporate technology into their offering to meet the immediate and long term needs of consumers.
Analysis of Tesco and ASDA
Tesco
Tesco is the most profitable supermarket despite its fallback in profitability in 2014/2015 financial year when it recorded losses, layoffs, written downs property, and accounting issues. Due to the size of their market share, they make the most profit in the UK. The company makes about £3.3 billion every year. However, the gains are somehow lower than the profits level before the 2014/15 crisis and also due to the emergence of discount supermarkets, Aldi and Lidl (Money Hub, 2019).
With family budget becoming tighter and tighter, consumers want to pay discount prices. The leading discount supermarkets in the UK are Lidl and Aldi. They are low budget shops, and they have changed the way people shop in the UK. Besides, they have compelled most companies to cut product prices. As a result, Tesco now talks of frictionless shopping, a strategy to curb the rapidly rising discounters and e-grocery retailers. Besides, it also speaks of its most recent development of same-day delivery in an hour (Money Hub, 2019).
Tesco Success Story
One of the factors that have made Tesco a successful supermarket in the market is its strong brand. The brand has been known for value, low prices and customer-centric values. Besides, brand equity and associations have propelled the expansion of the company into other regions. Its public relations, advertising and building profile in catchment areas n local and global markets has been extraordinarily excellent. Notably, the company has a good range of products, provides unique customer experience and satisfaction (Aiello et al., 2020).
The company is also active in ensuring that competitor influence does not affect the company’s profitability. For instance, when Aldi and Lidl came up as discount supermarkets, Tesco immediacy revised its prices, established a delivery system for customer shopping and improved its instore customer experience, still maintaining its customer base. It is also notable that Tesco watches the moves of technology, competition, and consumer behaviour to ensure it remains at the top of profits making. Tesco has also increased efficiency and effectiveness. It has cut some of the costs through better use of IT and added value to the business. Lastly, it also collects consumer’s preferences and shopping habits through questionnaires and uses the results to improve customer service and experience (Aiello et al., 2020).
ASDA Stores Limited
ASDA Plc is one of the major competitors of Tesco supermarket. The company’s major success story has been cost leadership. It provides low-cost products to the market and also has a reliable brand name, operating several stores across the UK. Its success can also be attributed to its collaboration with Wal-Mart, which enabled it to use the USA culture in the UK. Consequently, it is a different supermarket as a result of mixing the USA culture in the UK culture (Xie & Allen, 2013).
Besides, Asda is also known for offering non-food items which have boosted is sales significantly. It provides an extensive range of products, thus attracting a broader customer base compared to other competitors in the market. However, the company has lost many customers because of low-quality products. While it struggles to provide low-cost products to customers, the company neglects to meet the quality that satisfies the customers. As a result, many customers have shifted to Tesco, which deals with quality products at affordable prices. Besides, Asda has more than 500 stores. There is a challenge in managing the stores to meet the needs of the customers. The additional collaboration with Wal-Mart has nailed the management to the cross and reduces its performance. Consequently, many loyal customers have shifted to other supermarkets (Zielke, Toporowski & Kniza, 2011). This is the headline of their failure story.
Grocery Retailing in India
The Indian grocery market is forecasted to grow from US$570 million in 2018 to US$18.7 billion by 2023 (Salman, 2019). The growth is attributed to the growing online grocery stores resulting from the increased number of internet and smartphone users. For instance, online platforms such as Bigbasket and Grofers receive more than two hundred orders per day. The enhanced online grocery shopping is projected to hit 1.2% of the overall retail market in India by 2023 (Salman, 2019). Apart from food delivery, online shops such as Swiggy has ventured into the supply of medicine and other deliverable products. Indisputably, the Indian retail market is switching to e-commerce which accounts for about 40% of the overall grocery retail market, and many physical stores will lose walk-in customers (Salman, 2019).
Notably, India’s millions of market stalls and specialist shops, kiranas and kiosks – collectively known as ‘unorganized retail’ – account for around 98% of the country’s grocery sales (Salman, 2019). Unorganized grocery retail gives consumers in India wealth of experience and understanding. Unlike the modern grocery retail, which has been in operation for about a decade, the Indian grocery retail sector enjoys the welcoming attitudes of the consumers, and it is projected to remain anchored in its position.
Factors that influence and shape Grocery Retail in India
Local Advantage
India is the second populous country in the world, hosting three megacities, Mumbai, Delhi, and Bangalore with metros home to over ten million people each. Contrarily, most of the people (about 70%) are rural dwellers. Besides, a mixture of languages, religions, ethnicities, cultures and climate across the country presents an opportunity for business to localize their offerings. Kiranas are a typical example of localized grocery stores in India. Many local consumers consider them as the neighbourhood stores embedded in the local communities (Phutela, 2020).
Moreover, the same families run kiranas for generations, providing a deep sense of understanding local demographic, and building long-lasting relationships with shoppers. Many Kirana retailers enjoy the proximity of the stores’ locations established long ago. Consequently, modern retailers can hardly find a space to erect and develop a large store format –the reason for many modern retailers to penetrate online opportunities (Kanakaratne, Bray & Robson, 2020).
Personal Service
According to Kanakaratne, Bray and Robson (2020), the unorganized structure of the grocery retail and the popular kiranas do not require loyalty cards and programs to retain customers. Instead, India’s unorganized retailers are experts in building personal relationships with their shoppers. Besides, shops offer credit to shoppers to help them balance their budget. As a result, it is almost impossible for any new retail shop to ‘grab’ such loyal customers.
Specialization
Many unorganized retail shops in India take different forms. Some are specialized in selling fast foods, some green vegetables, and other grains. In other words, the Indian market consists of sellers who are dedicated to whatever they sell. Rarely would one find a retail shop selling a wide range of products as it happens in modern grocery shops. This also poses challenges to new and upcoming shops.
Technology
The growing number of internet and smartphone users is an opportunity for new retailers to enter the Indian grocery market. Every day, online shoppers are increasing. More goods are supplied online. As a result, retailers have begun delivering products to the customer’s doorstep. According to Salman (2019), Online food and grocery retail, which currently accounts for just 0.2% of the overall market, is expected to touch $10.5 billion or 1.2% of the total market by 2023, driven by an increased assortment of products and efforts like express delivery operations. Implicitly, many new retailers are exploring this opportunity to meet the demands and deeds of the customers in the market.
Analysis of Reliance Fresh and Spar Supermarket
Reliance Fresh
This is the second-largest grocery retail company by revenues and house list of business including retail fresh, reliance smart and reliance trends among other stores. In the financial period 2018/19, the company reported Rs 100,000 crore in annual revenues, becoming the first Indian company to cross Rs 100000 crore (Bailay & Jain, 2019). The success of the company in earning a massive amount of revenues is attributed to its ability to expand and cover a broader customer base. The company has been establishing new retail stores across the Indian Market while focusing on online retailing.
According to the Economic Times report, the company has been utilizing technology to record consumer buying habits and preferences. As the number of users of internet and smartphone owners rises, Reliance Fresh also uses the internet for marketing, promoting and selling its products. Selling products online has been their most excellent means of expanding their business and revenue base. Besides, the company has integrated its marketing communication tools, avenues, functions and sources into a seamless program which utilizes an impact on consumers and reduces operations costs (Bailay & Jain, 2019).
Their market is broad, and they have a wide range of products so that the customers do not need to move to the nearby shop for any product. Each market segment is served in a localized manner to ensure their lifestyles, culture and practices are not disrupted. The key to all these success plans is the reliance on improving technology.
SPAR Supermarket
One of the critical success factors of SPAR is the commitment to customers and employees. The company operates about 20 stores in India. In the financial period 2018/19, the company crossed revenues of Rs 1,000 crore last year and has been clocking double-digit growth of late (Salman, 2019). However, the company has not utilized the culture and religion of the market. For instance, in one article, the MD of the Retail Chain in India complained that One could not compare Indian and western markets. Consumer needs in both markets are a function of culture and context, a cut copy paste of technology of say; for example, American technology will not always work for the Indian market. Spar has various spaces in Indian technology which it should fill for it to meet its revenue goals and customer needs (Govindan, 2017). Though a significant corporate, it has not embraced technology fully and customized customer experiences in the Indian market. This is where Reliance Fresh is shining.
Recommendations
From the above analysis of the grocery industry in the two countries, the company should invest in Indian Market. As we have seen, the Indian market appears to be flooded yet there are low hanging fruits which the company can quickly harvest. First, technology is being embraced in India, unlike in the UK where the war isn’t about technology but discounts and change of consumer habits. A company looking to invest in the Indian market should consider investing in technology to ensure that consumers can access products through various sources, including electronic sources.
According to Livemint report, India is expecting to increase its online grocery retailing to more than $10.7 billion or 1.2% of the grocery retail market by the end of 2023 (Salman, 2019). Contrarily, the country with the second largest population in the world has 70% of the people residing in remote areas. This is the low hanging fruits which the company can use to establish its customer base. Online grocery retail is becoming the dominant business in India, and any upcoming country must consider the ease customers accessing its products through electronic media. The company cannot rely on traditional forms of marketing, promotion, selling and customer relationship. Kiranas are anchored there. It would be almost impossible to attract customers who have credit at Kiranas to your shop. However, with online selling door to door delivery, the company can establish itself and be the Amazon of India.