27 Mar What Article 50 means for grocery retail
When Article 50 is trigglered, grocery retailers will see their profit margins squeezed as their ability to import goods from the EU is hampered by inflationary pressures, higher commodity prices, less favourable tariffs and increased supply chain costs. Whilst the retailers should not assume that they can pass on price increases to consumers, as seen by ‘Marmitegate’, this may well happen, at least in the short term. Justin King, former head of Sainsbury’s, has warned that under the government’s current Brexit negotiations, supermarket prices could rise 5% over the next year.
Grocers that will fare best are those that have the leanest and most responsive supply chain systems, can rely on their economies of scale and, importantly, have the infrastructure in place to source produce locally. Whilst the Discounters lead the way on all fronts here, all UK retailers will need to increasingly turn to sourcing and manufacturing more goods locally in a bid to ensure that they maintain price-competitive for consumers whilst also protecting profit margins.
The wiser retailers will leverage this change with shoppers in line with current consumer trends.
FMCG brands need to think hard about their target shopper and what their mind-set is. Shoppers are likely to become even more price-savvy, therefore brands should ensure that they’re both creating and communicating more effectively than ever a positive value equation for shoppers, e.g. the performance and benefits of the advertised product outweigh any price barriers. Procter & Gamble are the masters of this through their bold, comparative advertising claims; ‘Duracell lasts up to 6x longer than ordinary batteries.’