The food retail sector has changed profoundly in recent years, both due to digital transformation and the pandemic, and consequently so has food retail marketing. But what are the features of this change and, above all, what are the digital solutions to exploit in order to avoid getting crushed by e-commerce?
If we look closely, food retail is one of the sectors that has faced the most changes in recent years. Due to the pandemic, the sector has had to face challenges that will surely leave their mark. For this reason, it’s only natural that food retail marketing and the relative strategies implemented by the sector’s key players have also changed. Both the pandemic and digital transformation have increasingly affected the characteristics of a segment of the economy that, for a country like Italy, is decidedly strategic. It’s no mystery that e-commerce is increasingly gaining market share compared to traditional competitors. This is demonstrated by famous examples such as those of Alibaba or Amazon which, in order to gain a foothold in the rich food retail sector, have begun to open real physical stores.
On the other hand, however, digital transformation represents more than this competitive “threat.” On the contrary, in many respects, digitization is offering new tools and solutions to fuel a sector that, in order to remain truly competitive, cannot rely solely on the quality of its products. But let’s go in order and start with the data.
A sector whose growth has risen incredibly…
In order to understand the situation of retailers in the food sector, it is worth considering what the statistics tell us about consumption and revenues in the last period.
As you can imagine, food retail has held up well in the pandemic and it has managed to increase its revenues during this period of emergency. After all, we all have in mind the long lines outside the malls and the race for yeast that, over a short period of time, lead to a shortage of flour, eggs, and everything else required for baking. All of this clearly had a fallout on the retail numbers for the period.
Going back a few years, we can see how large-scale retail was already coming off a four-year period (2013-2017) where aggregate sales grew. Even in 2017, turnover reached €83 billion, which is the best result since 2014. However, at the same time, we saw the steady decline of net operating margin by 5.5% and the current result by 5.9%. This would have meant a slow but inevitable march towards stagnation for the entire industry, which has also happened in other countries, including the United States.
This trend was reversed by the unforeseen factor of COVID-19 and the resulting lockdown. This had a considerable impact on sales, which, at least in the first phase, soared upwards. According to some surveys, there was an across-the-board increase that affected the North East in particular (+7.4%), followed by the South (+5.2%), the North West (+3.5%) and finally Central Italy (+1.8%). The phenomenon has even been defined as “an earthquake,” also in light of the great increase in demand in recent months, which has risen to levels that are not usually reached even during the peaks around the Christmas holidays.
…but ends up slowing down
As they say, everything that goes up must come down. This is what happened in the food retail sector.
After the initial phase, the growth of the sector quickly stabilized, reducing considerably as the health emergency slowly receded. This did not prevent players from bearing the positive signs of this acceleration, which gave a general breath of fresh air to most operators. But if these positive signs have been reduced over time, other consequences of the pandemic continue to be felt and tell us much about the shape that this sector will have in the future.
One of the most significant transformations set in motion by the current period is the rediscovery of proximity shopping.
Although the images of supermarkets taken by storm have dominated the pages of newspapers for days, curiously enough, it has been the stores and small retailers that have driven the growth of the entire sector in recent months. Suffice it to say that during the health emergency, smaller retailers recorded a 27% increase, far outstripping supermarkets (+12.9%) and discount stores (+7.9%), competitors often accused of cannibalizing smaller players. This highlights the fact that in a period of high risk for contagion, people preferred to go shopping in smaller shops where there was less risk of crowds. In addition, many neighborhood stores, thanks to their size, were able to reshape their offering of products according to the needs of the people in their neighborhood, meeting the most frequent needs and organizing a home delivery service, activating once neglected communication channels such as Facebook, Instagram, and Whatsapp.
Thanks to this, many citizens have rediscovered the importance of small neighborhood stores and the inestimable value of the network of relationships and the society of which they represent a fundamental node. This, among other things, has pushed the same consumers to want to support smaller businesses who are more vulnerable to the effects of the health emergency.
The second sign of change in food retail, as mentioned above, is the advent of e-commerce as a reality with which all players must reckon. Suffice it to say that in the period between the end of February and the first days of May, sales of FMCG products through the network grew by +144.6%, reaching an incredible +304.6% in the peak phase.
Since the beginning of 2020, the number of online consumers in Italy has tripled, reaching the remarkable figure of 2 million users. Moreover, this trend is already widespread throughout Europe: 93% of consumers in the UK have been buying online for several years, as have 91% of consumers in the Nordic countries and the Netherlands, followed by those in Germany (88%) and consumers in Spain and France (84%). Among other things, unlike the growth mentioned above, the importance of e-commerce is destined to last over time and to be felt for a long time to come. This is all the more true if we consider that a new way of buying and consuming food has become widespread, namely “modern food retail,” which is nothing more than the online purchase of food that is then eaten at home.
We are facing the end of a taboo: e-commerce is no longer relegated to purchasing objects or electronic accessories, but becomes a distribution channel for food that is on a par with the physical one. This marks an epochal change of mentality (at least in Italy), which inevitably has repercussions on the marketing strategies that players will have to adopt from here on out.
How is food retail marketing changing?
That’s the question, and it can and should be answered from the changes that have been described above. Proximity and digitization: how do you keep these two things together?
We’ve already indicated how small retailers are increasingly open to the tools and solutions brought into play by digital transformation. The web has become a fundamental tool for making their products known and for reaching users with specific offers posted on their profiles. However, social networks are not the only element that is playing a fundamental role.
On the contrary, for some time now, many large retailers are open to other digital innovations that are changing the way consumers do their shopping. We’re talking, for example, about applications for tablets and smartphones, which the major players have developed to facilitate the customer experience for consumers.
An interesting case is provided to us by the Despar group, which has developed an app that sends customers a notification for special offers or promotions. The app also includes a section dedicated to coupons, points collection, and even an area dedicated to games. The game serves as a form of entertainment, but it’s also a way for the customer to win discounts and special offers based on the results.
Another example is Esselunga, which has activated the Ufirst app for digital queue creation, so customers don’t have to physically wait at the checkout. With this simple innovation, retailers have found an immediate and effective way to transform the smartphone into a device capable of facilitating the purchase and making the entire customer experience more fluid and consumer-friendly.
Among other things, these types of tools not only serve to improve the customer experience: they multiply the possibility of reaching users with notifications and personalized messages that operators can use to encourage them to go to the point of sale.
The real challenge of food retail marketing
If food retail in Italy is running on these two tracks—digitalization and the rediscovery of small food shopping centers—we can ask ourselves what will become of physical spaces, especially large ones. On closer inspection, the challenge of the next few years will be precisely this. Here, operators will need to rethink the structure and overall organization of stores so that these places—which are fundamental to the sector—do not lose their appeal. After all, this is what retail marketing is all about: “promotional activities carried out by commercial distribution companies in order to increase purchases at the point of sale”.
Therefore, food retail marketing must figure out how to enhance physical spaces now that digital distribution channels are becoming relevant. One way is using applications for smartphones, which shows how the physical store must merge with the online, putting the consumer in a perfectly phygital environment.
The next step is omnichanneling
To do this, it’s clear that more food retail marketing strategies will have to strive to create an effective omnichannel environment, so as to put the customer and his or her consumption experience at the center, while at the same time building an interconnected system between all the points of contact that the retailer has with the customer. In this way, the consumer has the possibility to interact with the company by being able to choose among several options. At the same time, he can live the same experience through as many touchpoints as he wants without losing continuity in the different steps from one contact point to another.
From this point of view, however, the Italian sector is immature. If on the one hand, traffic in physical points of sale is decreasing, at the same time players have not yet satisfactorily completed this transformation. According to a report from the Omnichannel Customer Experience Observatory at the Politecnico di Milano, among all operators “fewer than 40% have a structured approach to omnichannel and data-driven marketing, only one in four has an omnichannel customer care approach, and about half have sales integration services from online to offline.”
Although the pandemic has accelerated the transition towards this type of food retail marketing strategy, there is still a long way to go, since until now we have operated in an emergency context. On the other hand, decisions must be made with a clear idea of a long-term strategic project, aimed at radically changing the way sales are made in stores.
To do so is not only necessary, it must also be convenient. First of all, because opening up more sales channels increases the chances of reaching new customers. And not just any customers, but particularly “valuable” customers.
This was underlined by a study of the Harvard Business Review, which found that customers in an omnichannel environment tend to spend more time in the physical store during shopping, which also shows a greater predisposition to spend more, as they tend to be very loyal.
Beyond the play on words, this evidence should be enough to whet the appetite of many players in the food sector in Italy and beyond.
Download the free ebook and find out the best strategies for winning new marketing challenges in the food sector!