The cost-of-living crisis continues to put pressure across the supply chain, as consumers change behaviour, Real wage growth has fallen, impacted by the strong rise in inflation, driven by the sky-rocketing energy prices. The Asda income tracker has tracked a decline of -18% year-on-year in household spending power, the largest percentage decline since records began.
The UK convenience retail sector certainly isn’t immune to these challenges, with shoppers expected to tighten their purse strings on where they conduct their shopping and what they purchase. This is already evident, as highlighted by insight experts Lumina Intelligence at its recent Q3 Convenience Strategy Forum in London:
The rise of savvy spenders
Data collected by Lumina Intelligence already suggests that consumers are starting to save money. Trip spend is down 7%, with average spend per item down 7% also. However, basket size remains stable. This suggests that shoppers are trading down to less expensive products or categories when shopping in convenience. In addition, Google Trends indicates that searches for “cheapest supermarkets” have sky-rocketed in 2022. This is evidenced by an increase in shoppers visiting discounters - +2.1ppts in the latest 12 weeks according to Lumina Intelligence data.
Value messaging is key to winning in convenience in the current climate. Since June, own label’s share of total convenience purchases increased +2.3ppts. On average, these products are 55p cheaper than branded products. This is a good time for convenience stores to start assessing own brand ranges to ensure they are catering to the changing needs of consumers.
On-the-go on the up
The top up mission is synonymous with UK convenience retail and, whilst this remains the case, we are starting to see a shift in the mission mix. In the last year, the planned top up mission has seen its share of total convenience occasions fall by -2.5ppts to 19.9%.
In turn, there has been an increase in share relating to food to go missions. This is driven in part by consumers becoming more transient` and seeking on-the-go solutions, but also by those seeking value-led meal solutions.
Now is the time for retailers to review their food to go range and capitalise on a key footfall increasing category.
Home is where Christmas is
Since the crisis began, the hospitality sector has taken a significant hit. Eating and drinking out has declined by -7%. Consumers are tightening their belts and seeking ways to save money. With the festive period looming, this could be a great time for convenience to tap into this market and target key out of home (OOH) occasions – Christmas parties, dinner parties and social gatherings, which may be more likely to occur in the home this year. Convenience should be focussing on premiumisation, with consumers still happy to pay for quality, whilst seeking to cut back.
The main reasons individuals go out to eat is because they “didn’t want to cook” and for a “treat.” Meals for tonight are a great solution for tapping into this market and are already becoming more popular, with average spend on the meal for tonight mission increasing +7.2%. With tighter budgets this year, there is an opportunity for convenience stores to look at bring in more premium meal for tonight ranges, that are fast and easy to cook, but also make shoppers feel like they are still having a treat. Two great examples of this are, Tesco’s ‘Tesco Finest ‘£6 Meal Deal – 1 Pizza & 1 Bread’ or Co-op’s ‘2 Mains, 2 sides, 4 drinks’ offer. Retailers could also pair a premium meal with a bottle of wine, or a premium dessert.
Growth ahead, despite headwinds
Despite the challenges that the convenience retail (and other sectors) faces, the market is still set to grow. Lumina Intelligence predict the market will be worth £48.6 billion by 2025, a net increase of +£3.4 billion from 2022F. This represents a significant growth opportunity for retailers to target.
Find out more about the Lumina Intelligence Convenience Strategy Forum