For food and drink businesses that want to scale up and succeed in supermarkets, understanding how to approach retail is key. There’s much more to it than having a great product. A solid strategy and knowledge of the retail landscape is essential, from targeting the right stores to pitching to managing logistics.
Our latest webinar, presented by Rachel Way, Head of Retail at Product Chain, explores how to get listed with major retailers. Drawing from her vast experience, Rachel shares valuable insights that can benefit any food and drink business seeking to partner with supermarkets and multiples. Let’s dive into the key factors that food and drink businesses must consider to succeed in the retail industry.
Understanding the current state of the market
Firstly, to achieve success in retail, it is crucial to have a clear understanding of the current market landscape. In the UK, the leading supermarkets’ market share has remained relatively stable from January 2017 to April 2023, with Tesco holding the majority at just over 27%, followed by Sainsbury’s (14.9%), Asda (13.7%), Aldi (10.2%), and Morrisons (8.8%). However, the grocery retail landscape has significantly shifted due to post-Brexit uncertainty and rising inflation, leading consumers to favour cheaper alternatives like Aldi and Lidl. In September 2022, Aldi surpassed Morrisons to become the UK’s fourth-largest supermarket for the first time.
Consumer behaviour has changed since 2021, with notable increases in Lidl and Aldi’s sales. On the other hand, Morrisons has faced challenging times, losing its position as the UK’s fourth-largest supermarket. Considering these factors is crucial when targeting the right supermarket for your product and anticipating potential challenges during the listing process.
Impact of cost of living on consumers
Consumer Price Inflation (CPI) is a major factor influencing buying habits in the retail sector. The Consumer Prices Index, including owner-occupiers’ housing costs (CPIH) rose by 7.3% over the 12 months to June 2023. This inflationary pressure has impacted consumer spending decisions. According to Circana, annual spending per consumer has increased to $10,471, up $440 compared to the previous year, with the highest contributions coming from housing, food and non-alcoholic beverages.
Food prices, in particular, experienced a substantial 7.7% rise between April 2022 and April 2023. This has led to significant price increases for cooking staples like milk, cheese, eggs, and margarine, with suppliers affected by higher ingredient costs. Food and drink businesses must consider these market dynamics and inflationary pressures while strategising and positioning themselves for success.
Barriers food and drink businesses are facing
The food and drink market is evolving. Navigating the current market challenges requires food and drink businesses to overcome several key barriers. Key among these are:
- Cost of living crisis: Buyers are less inclined to purchase more expensive products. This makes it harder for suppliers as supermarkets also want healthy profit margins. Finding the right pricing strategy that meets retailers’ margin requirements is essential for a successful listing.
- The corporate domain – Independent suppliers face more significant challenges in being listed in major multiples compared to those with access to corporate leverage. Corporates generally benefit from established relations, resources, and supply chain setups.
- Consumer mentality – Consumer preferences are shifting towards more own-label brands on a similar par and quality as branded products but at a more affordable price. Small brands must find ways to differentiate themselves and appeal to changing consumer preferences.
How to approach retail
“While it might seem like hard work and many battles going on, small brands are winning.”
Despite the challenges, small brands are making significant strides and winning in the current market. The changing consumer behaviour and preference for unique offerings create opportunities for smaller brands to gain traction. To stand out and find a winning Unique Selling Proposition (USP), Rachel emphasises the following strategies:
- Know your data and category: Absorb as much knowledge as possible about your product category and competitors. State facts and figures to reassure retailers that your product is the right fit for their category.
- Engage proactively with retailers: Before approaching retailers, build your tribe and engage with potential partners. Proactively demonstrate how your product aligns with their needs and customer preferences.
- Deal with pushback: Expect pushback from retailers, especially if your pricing strategy is not aligned with their margins. Be prepared to negotiate and demonstrate the value your product brings to their shelves.