‘Battle for data will be the battle for the bottom line in grocery’

Across Europe, the grocery sector has been challenged by surging inflation, consumer trade down, flat online sales and pressure on margins.

As these trends begin to dissipate, many executives are considering a pivot to growth-focused themes. In the UK, however, the narrative remains mixed. Food price inflation, for example, has continued to accelerate and there is a consensus across consumer demographics that saving money matters.

Alongside dampened demand, the UK faces a structural headwind, amid competitive dynamics that contrast with those in mainland Europe. While fragmented Europe sees a wave of consolidation, the UK’s mature model means share among the biggest players has remained relatively stable over the short term.

Moreover, the growing online space does not command the loyalty of its offline counterpart. The percentage of UK shoppers who shopped online and offline at the same retailer fell to 26% in 2022 compared with 31%  two years previously, research has shown.

In response, decision-makers are finding new ways to compete and differentiate. In loyalty programmes, operated by nine of the top 10 grocery players, an emerging theme is the development of innovative engagement concepts.

The mid-tier, accounting for about 50% of UK sales, has shifted focus to loyalty-only benefits. These reserve rewards include better prices, cash-based incentives and shopping ideas for programme participants.

Premium players tend to anchor their programmes on personalised offers, while value players aim to drive repeat spend. There has also been accelerated activity around loyalty relaunches and new propositions – mirrored in sectors outside pure grocery retail, including health, beauty and apparel.

Putting promotions behind ‘loyalty walls’ underpins a significant uptick in data-driven operating models, with retailers betting the next generation of marketing technologies will generate much deeper levels of insight.

Many are also offering data-driven services through retail media networks, allowing marketers to purchase advertising space across digital assets. Still, despite these efforts, most are yet to achieve significant upside, for example through scaled personalised solutions or advanced engagement.

Data’s new future

We believe companies that emerge strongest from the current downturn will break out from the status quo to shape a new data and insight paradigm.

This will be built on using analytics to create new norms of personalisation, as well as unique store offerings based on behaviour and needs in the local catchment area.

Grocers will increasingly understand price elasticities, gauging how price impacts purchasing over time, and will feed that back into nuanced assortments and prices. Many will use propensity models to drive basket size.

Right now, UK consumers are saving money by spending less on alcohol, snacks and soft drinks, rather than frozen and fresh foods, our latest consumer survey shows. And about three quarters plan to trade down in at least one category.

“Grocers with advanced data analysis capabilities can spot these real-life events and create offerings that ensure every customer’s experience is appropriate and compelling”

But within these statistics, individuals will make decisions based on real-life events – from birthdays to house moves and changes in job status. Grocers with advanced data analysis capabilities can spot these events and create offerings that ensure every customer’s experience is appropriate and compelling.

As decision-makers consider the next steps, the first task will be to attract as many customers as possible to their programmes – and to do it at a cost that makes sense. Through loyalty will come data, and the battle for data will be the battle for the bottom line.

Being smart on promotions and pricing sounds like a version of current ways of working. However, the North Star vision is a transformed customer experience.

A well-functioning approach creates a virtuous circle: an attractive proposition generates more data, which feeds analytics and technology that enable modelling of segments of one.

This in turn informs individualised pricing and promotion, which drives loyalty. Moreover, targeted offers also reduce wasted spend and attract incremental – and highly profitable – media business. The result? A win for customers and a timely boost to the bottom line.

• Anita Balchandani is a senior partner and Samantha Phillips is a partner at McKinsey & Company