“Wave of supermarket closings on the horizon"

Nils van Dam (Duval Union Consulting)

Due to the shift towards home delivery, traditional supermarkets will soon be in serious trouble, Nils Van Dam of Duval Union Consulting predicts. He estimates between 30 to 40 % of supermarkets will have to close in the coming decade, due to a lack of revenue.

 

“One in three at a loss”

The high fixed expenses in the industry are a determining factor: those tend to vary between 60 and 70 % of the turnover for food retailers. "On average, the major chains only have to lose 3 % to new online players to see their margin drop below 1 %. That means about 30nbsp;% of stores will be loss-making", says Van Dam. The consultant at Duval Union Consulting has got over thirty years of experience in the food industry and has held executive positions on the global, European and local levels at Unilever, AB InBev and Censydiam.

 

So far, the food market seems to have escaped the impact of e-commerce, but Van Dam is convinced that the tide will soon turn (even though major supermarkets have been opening a remarkable amount of new outlets), due to the growth of home delivery and the arrival of new online players who have no need to worry about fixed expenses for stores.

 

Belgian retail vulnerable

“Chains like Albert Heijn and Jumbo charge extra for home delivery; they have to, because otherwise it is not feasible financially with all of the brick-and-mortar stores they are running as well," says Van Dam. "If Amazon and other new companies enter onto the market, they will be at a major advantage compared to the existing supermarkets: they do not have stores that cost money, so they can offer home deliveries for free. In addition, they mostly make money on the data they collect and then sell to advertisers. And yes, there is the matter of privacy, but still people use it - we are also still on Facebook and we are still asking Google the most intimate of questions."

 

Physical supermarkets will continue to exist, Van Dam thinks, but he believes their success will mostly be limited to densely populated areas where lots of people are employed. "Then it is easy to go out and quickly buy something. Extra large supermarkets outside of the cities will be the first to fall. Belgian retail is very vulnerable in that regard."

 

Experience and convenience

Can the major chains still do anything to prevent this doom scenario and maintain employment? "There is already a wide consensus that says supermarkets need to offer more of an experience - think of a restaurant inside the store, coffee corners, tastings, cooking workshops,... In the United States they even are food stores that organise yoga lessons. But it would really make a difference if major supermarkets were to change their models gradually."

 

According to Van Dam, the responses of food retailers in the Benelux vary, from outright denial to careful attempts to adapt. Officially, they do not believe in free home delivery and they expect its part to remain very small: "there is no demand and there is no profitable business model". The reality might turn out quite different: the physical store of the future will have to excel in terms of the experience it offers, its location (convenience stores) or the ease of picking things up.

 

Invest in data

“Collect and use more customer data, like Ahold Delhaize is already doing with its bonus card and the combination with bol.com. Above all, know that supermarkets will not escape the digital revolution, make investments for the future and adjust the infrastructure. Only then can forced store closings and loss of job opportunities be avoided."

 

In this climate, why do food retailers still keep opening new stores? Van Dam believes there are two important reasons: one tactical, the other strategic. "Tactically speaking, it is very hard to close stores without losing turnover and market share. The remaining stores in the neighbourhood would immediately pick up that turnover. After all, most consumers do not shop anywhere further than 3 to 5 kilometres from where they live or work. Strategically, the last remaining retailers will acquire a stronger position in the market. A large portion of consumers will still be shopping in brick-and-mortar stores. As a result, those remaining stores would become extra profitable once more." In short: the last man standing wins.