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The return of mass real-world shopping (at least for groceries) was probably a welcome relief for supermarkets.  COVID19 highlighted just how weak their online sales channels were compared to competitors like Amazon.  Now, however, supermarkets are gearing up for another huge challenge – surviving inflation.

Supermarkets and the cost of living

Modern supermarkets entice consumers with easy access to key items such as staple groceries.  Generally, they make a point of selling these at much lower prices than convenience stores.

The exception is when supermarkets are running their own convenience stores.  Even these, however, will usually be more affordable than other local stores of comparable size and nature.

Regardless of the size of the store, the essential business model is the same.  Supermarkets make little to no profit on basic groceries but entice customers to spend their savings on non-essentials.  Supermarkets can make higher profits on these because it’s harder for customers to make objective price comparisons on them.

This means that the current state of inflation creates two problems for supermarkets.  Firstly, they need to find ways to maintain low prices on essential items.  Secondly, they need to find ways to persuade customers to keep spending on non-essentials.  Realistically, the second point depends a lot on the first.

Squeezing suppliers is unlikely to be an option

Supermarkets are well-known for their tenacity in getting the best possible deals from their suppliers.  While they will presumably continue with this strategy as far as they can, there is likely to be a limit on how far this will take them just now.

The simple fact is that suppliers have to make some sort of profit.  If their expenses go up, they will need to pass at least some of that cost onto their customers.  Also, if supermarkets push suppliers too hard, they may face consumer backlash and possible regulatory action.  They may also find that suppliers have more leverage to look for other customers.

Increasing efficiency could be possible

In the real world, supermarkets are largely models of efficiency.  Online, by contrast, they lag way behind digital-first retailers, especially Amazon.  The supermarkets must know that this is something they need to address urgently.  They are surely aware that the inability to get to grips with ecommerce was a major factor in the decline of department stores.

If they really push to improve their online service, they could potentially improve their efficiency enough to make meaningful savings.  The savings may not be enough to counterbalance the effects of inflation completely.  They could, however, certainly earn the supermarkets a bit of much-needed breathing space.

Alongside this, supermarkets may push harder to electrify any vehicles they own.  As with improving their online offering, this is something they need to address urgently anyway.  Doing it sooner rather than later might help them to reduce their running costs.

Reducing waste could bring huge benefits

This is possibly the most exciting option for a number of reasons.  Even though supermarkets are largely models of efficiency, at least in the real world, they’re also notorious for waste.  In fact, somewhat ironically, their drive for efficiency has increased their wastefulness.

One well-known example of this is the issue of “wonky” fruit and vegetables.  Traditionally, supermarkets have refused to purchase these.  As a result, a lot of perfectly edible food has ended up being thrown away.

Part of the reason supermarkets rejected these items was because they believed consumers wouldn’t want them.  Another part of the reason was that these items were often harder to pre-pack than items that were at least fairly regularly shaped.

Supermarkets were already starting to address this before COVID19 and before inflation hit its current levels.  Unfortunately, the combination of COVID19 and Brexit derailed their progress.  Now, however, would arguably be the perfect time for supermarkets to reintroduce imperfect items.  It really would benefit everyone.

 

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