Food Retail Whitepaper

The changing UK food retail industry and its impact on construction

Food and construction may not seem like industries that sit side by side. However, the reality is that the two sectors are tightly intertwined and the changes currently taking place across food retail are having significant knock on effects on the construction industry. In this white paper we will look at how the food industry has changed over the past few decades, what is driving the changes, as well as outlook forecasts and the direct impact that changes in food retail are having on construction.

The evolution of the food retail industry

Food retail attitudes have changed significantly over the past century, even over the last decade or so. This has had a direct effect on the construction of food retail outlets, the level of demand, as well as the design adjustments required to accommodate certain shopper needs. Consumers have a very specific impact on the food retail industry, in particular:

  • The need to be able to offer a broader choice of products to more demanding consumers
  • The necessity of competing with the wide variety of online shopping options that today’s consumers have
  • Required responsiveness to increased entitlement to accessibility
  • Acknowledging and exploiting the impact store lay out can have on buying journey and sales

The food retail industry before supermarkets

Before the start of the 20th century, supermarkets were unheard of. Food retail was organised by product and most retailers sold just one type. So, the typical British high street or village would have perhaps a greengrocer, a butcher and a baker. Each store sold one type of product: meat, vegetables or bread and cakes, for example. There was no crossover and no single store where everything could be purchased in one place. Then, just after the war in 1948, the first supermarket opened in East London. A far cry from today’s superstores it nevertheless set a precedent for what could come next.

Don’t help yourself

At the point when supermarkets began to make an appearance the idea that you could walk into a store and help yourself to something was unheard of. Shop owners served customers, handing tins down from shelves, wrapping loaves and packing bags. By 1970, emerging supermarkets established by Sainsbury’s, Tesco and the Co-op were finding a foothold in the market. However, 30% of the food retail market remained with independent stores where the service was personal and the goods on offer limited.

The supermarket era begins

As supermarkets began to grow in popularity the cost savings created by customers being able to just help themselves quickly became obvious. It was much more efficient for a store to allow customers to fill their own baskets, as it required fewer staff. The knock on effect of this – plus the ability to bulk buy across ranges – was that supermarket prices became more competitive than independent retailers. Supermarkets could stack shelves high at cheaper prices, sell more and pay fewer staff – it was an equation that the independent retailer just couldn’t beat. Supermarkets surged in popularity and began to differentiate into sub categories. The supermarket pricing model could now accommodate even lower cost shops, such as Aldi and Lidl, which could sell an even broader range of products at even lower prices. All the while the buildings accommodating these new types of stores had to evolve from those that housed independent retailers. From the shopping area itself, to storage, tills and loading bays, food retail construction was now an entirely new ballgame.

Where is the food retail industry going next?

One thing we know for sure about the food retail industry is that it will continue to change. With diversification of diets and an ever-increasing range of products, as well as the advantages and disadvantages of technology, food retail is unlikely to stand still. Particularly as consumer tastes rarely do. In the short term we are likely to see price dictating the journey that many big food retailers take. Retailers will now need to cut the costs of running larger stores to be able to pass savings on to customers, as well as to deal with the 2017 trend towards smaller shops and supporting a return to independent businesses. But what about the long term forecasts for the industry?

Food trends and choices – health and wellness is a trend that has had a very wide-ranging impact across many sectors. In food retail the demand for lines that cater to different eating choices, from paleo diets, through to clean eating, will continue to drive change in food retail. Increasingly, medical and moral choices are also making an impact. You don’t have to look far now to see products that cater to food intolerances such as gluten free products, as well as a much wider selection of vegetarian and vegan products.

A rise in specialist ranges – in response to the broadening out of consumer food trends and choices we are likely to see a boom in specialist ranges in supermarkets. For example, the “free from” aisle – stocking products free from wheat, gluten, dairy or sugar (or all of them) – is now something many shoppers expect, rather than hope for.

Competition from specialist stores – supermarkets always face competition from independent retailers with a specialist focus. However, with the most prominent food retail trends currently focused on health foods and wellbeing products, specialist health food stores will continue to take sales from supermarkets. The forecast for this section of the market is that it will continue to grow too. There is a backlash among some consumers when it comes to supporting larger retail outlets with less traceable food provenance and the specialist nature of an independent store provides the advantage of more in-depth knowledge, a better informed range of products and well informed staff.

Technology will continue to dominate – online shopping and shopping apps already have a very well established role to play in food retail. Research from Mintel shows that 29% of online grocery shoppers in the UK are buying food online more now than they were 12 months ago. Sales are forecast to grow by 73% to reach a market value of £15 billion by 2020. So, for those food retailers looking to remain competitive, online shopping is a must. However, it’s not only in the field of online shopping that technology is playing a role. Consumers are becoming better informed when it comes to technology and more demanding. From apps to self-service check outs and being able to make choices informed by real time savings data as we shop, the retailers able to incorporate the latest tech developments are those that will win more customers.

New market entrants – just as supermarkets completely changed the food retail landscape in the 1970s, so the new market entrants who will arrive over the next couple of years will do the same. Key among these are services such as Amazon Prime grocery– a good example of very well established, well resourced organisations with global networks that can could revolutionise the food retail business model.

Food retail convenience – the most dominant trend in food retail is certainly the increase in supermarkets. Plus, the less prominent rise in support for independent and specialist retailers. However, convenience is another trend likely to become better established in the long term. Retailing at petrol stations, for example, is on the rise as ‘real life’ stores seek to compete with the convenience of being able to buy anything online while on the move. However, convenience retailing is changing as consumers become more choosy – shoppers expect the same range and choice from a small convenience store as a large supermarket, just on a smaller scale.

Demand for cheaper and more flexible shopping – the rise of convenience stores is likely to be most notable in high streets and locations where consumers live and work, such as commuter stations and business hubs. The challenge for retailers will be to respond to the consumer demand for retail that caters to consumer life patterns. We are entering a very consumer centric age where, to survive, businesses must understand what customers want and then tailor retail offerings to those needs, as opposed to assuming consumers will go out of their way to come to retailers.

What is causing the changes to food retail?

In 2016, the grocery retail market was valued at £186 billion. It is one of the largest and most fluid sectors and is very responsive to consumer demand. Although food retail may once have been dominated by the brands that could construct the biggest stores this is no longer the case. In fact, many companies with large supermarket constructions are now stuck with wasteful buildings that are inefficient because they haven’t been designed with the changing forces of food retail in mind. But what factors are having an impact on the changes in food retail?

The shift to online – a change in attitude is required from many big food retailers. In general, consumers don’t tend to do all their shopping online. There are some items – such as fresh meat and fish, for example – that many prefer to go into a store to choose. However, heavier items and products that are likely to offer a discount (washing powder, cleaning products, toilet rolls etc) are often purchased online. The convenience of having heavy items delivered, of avoiding supermarket queues and being able to find the best deals from the comfort of your living room is hard to argue with. As a result, the food retail landscape is being forced to adapt, to create faster and more value-added delivery services in addition to smaller and better designed stores.

Convenience is king – it’s not the first time that retailers have had to embrace this concept. However, while the convenience of the 1970s was to combine shopping for everything on your list in one place, today the big impact on the food retail industry is the convenience of shopping at the same time as living the rest of your life. Demand for this new kind of convenience is shaping many UK retail industries, including food retail. The once a week bulk shop has gone out of the window for many consumers and been replaced by numerous smaller shopping trips to more convenient stores that may be on a well trodden daily route.

Quality and choice will always been important to consumers and for many people that means having the opportunity to check, touch, examine and choose. That’s not something that online shopping can provide, as everything is picked and packed in a warehouse. So, while technology and online are undoubtedly driving change it’s important to remember that many, if not all, consumers will still want to exercise choice and their own quality discernment to a certain extent when it comes to shopping.

Demand for discounts is not a new trend. However, the way that this is manifesting now – in supermarkets selling discounted goods at the end of their shelf life at a specific time – is quite new. There is a huge opportunity to sell – rather than dispose of – goods at the end of shelf life whether this is done once a day or when stock is renewed. This is a tactic quite unique to big supermarkets with the widest stock ranges and opportunity to charge the lowest prices, so is one way in which large retailers are driving changes of their own.

Consumers are fickle now in a way that they have never been in the past. There is no loyalty to one brand – not even a supermarket brand – and consumers will happily switch from one to the next depending on where their shop is cheaper. The need to capture and recapture customers is another driving factor in food retail that will continue to create change in the coming years.

UK food retail industry changes + the construction industry

Given the very wide-ranging nature of the changes to the food retail industry, as well as the frequency with which these changes take place, it’s important to note the points at which food retail impacts on construction.

Consumer demand

The UK food retail sector has grown as an overall market and is doing well in terms of consumer confidence. Food has become more than just fuel and now represents everything from a disease free future to a status symbol. As a result, the demand for food retail projects is increasing. Retailers may periodically announce lower profits but on the whole they remain buoyant and are seeking to adapt to provide consumers with the products and experience that they’re looking for. This, combined with a high value property market, has served to create better consumer confidence and strong construction demand.

Retail developments

There has been a noticeable slowdown in large retail developments with the driver for that predominantly coming from the rise in online shopping. As fewer customers make the journey to a store, retail developments require less capacity and less focus on in-store experience. However, at the same time as demand for large retail developments has slowed there has been an increase in short-term construction contracts and smaller sites.

The switch to smaller refurbishments

One way in which the move towards retailers selecting smaller sites has had an impact is to create a boom in smaller refurbishment projects. So, rather than planning for large site constructions, many food retailers are instead choosing to open smaller stores to take advantage of the demand for convenience shopping. Smaller developments in highly populated areas are becoming the most popular type of construction, as opposed to large-scale stores that may be located out of town.

 Variation in food retail building types

As the food retail market diversifies so too does the type of construction required to support it. There are very few superstore projects on the table, for example, however the demand for warehouse buildings is much higher. This is primarily due to the fact that online shopping outlets require large and well-organised warehouses to efficiently fulfil orders. It is also being influenced by the trend towards smaller and more convenient stores. The smaller the store the less capacity it has to hold its own stock, hence an increase in the need for warehouse facilities that can be used to stock and restock smaller stores, as and when required.

While the construction industry is certainly feeling the effects of changes to the food retail industry these aren’t all bad. Those businesses able to adapt and survive can create exciting opportunities from current trends.

RG Group specialise in construction projects across the food sector as well as other retail projects. Discuss your projects with our experts by giving the RG Group team a call today on 01732 526 850.

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