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What Europe’s new retail landscape means for fresh produce

Planet Retail’s Bianca Casertano on how Europe’s changing retail sector will affect the fresh fruit and vegetables category.

Planet Retail’s Bianca Casertano on how Europe’s changing retail sector will affect the fresh fruit and vegetables category

Yesterday we shared the Frankfurt-based retail analyst’s analysis of the key shifts in grocery retail in Western Europe. Casertano charted the rise of the discounter and convenience stores, the demographic changes behind the decline of big box stores, and the blurring of lines between hypermarkets, discounters and convenience stores. Here, in part two, read Eurofresh Distribution’s interview with Casertano after her presentation on this topic at the  AECOC Fruit and Vegetable Congress in Valencia in June as she discusses the fresh fruit and vegetables category.

What do these changes imply for the fresh produce assortment in stores?

What is really interesting to know is that the shift from big box formats to small box formats, and online, means a change in product ranges. What you had in the past, this huge volume of fruit and vegetables on offer, will decrease both in volume and product diversity.
In city locations with a small sales area, you have to choose which fruit and vegetables you offer. Normally you choose the convenience oriented things, and focus on less variety. You can’t offer all the exotic fruit and vegetables anymore, as in hypermarkets.
For example, in a hypermarket or in a normal supermarket you can find carrots with some greenery on them. In convenience stores, maybe baby carrots is the product you need, because it’s ready to eat and there’s another package size. The shift towards small, inner city locations will have a huge impact on these product groups.

Could you share an example of innovation you’ve seen?

Demand is growing for pre-prepared and pre-washed products, because people don’t want to spend much time on that. There are some convenience store where you can wash your fruit so you can eat it right after you buy it. I think that is a genius idea. It costs almost nothing and it helps you increase the sale of fruit and vegetables. How often do you enter a store and you would like to have an apple or a peach right now? And some ICA stores in Sweden allow you to make your own smoothie onsite from pre-cut fruit and vegetables you buy there. These are small examples of innovative things that can increase sales for this segment.

What should the sector bear in mind amid the changing retail landscape?

That multi channel is on the rise. They are not straight borders anymore, the formats will merge, and this means more complexity. For retailers that means more investments but these high investments will definitely pay off in the end. Because at the moment, if as a hypermarket operator you say, “No, I don’t want to launch ‘click and collect’, e-commerce is another sector and I don’t want to have to do something with it,” then you will fail, because people expect to at least have the possibility of. Although it’s not profitable for the retailer, they have to react to this trendAlso, because of the demographic changes I talked about, retailers need to go more into the inner city locations, not the outskirts anymore.

Is a move to less loose and more pre-packed product inevitable?

I see a trend in Germany towards more of these products, packaged products, or already washed products, because people don’t have time anymore to prepare their food. They want to have it ready to eat, and therefore I think this will increase in the future.

How might the growth of e-commerce affect producer prices?

As far as the online trend is concerned, I think you can’t offer fruit and vegetables online for a higher price just to get the right margin. Grocery e-commerce is very cost intensive and people won’t pay a higher price just because the system is more expensive. I don’t think that prices will go up, because people won’t accept that. What we currently see in Germany is that prices for groceries have really decreased but people don’t have the feeling, because overall they think they have to spend more for everything, but this is not true for groceries.

You have stressed there are risks in over-generalising and that not every market follows the convenience trend. How does your home market of Germany vary?

In Germany you don’t have so many hypermarkets. you have a high density of discounters. Everywhere you have a small shop within the cities, so if you want to buy something you can buy it anywhere. And in Germany margins for grocery food are so low that it’s very difficult to have a profitable online business for grocery. German shoppers are quite conservative, as well.

A last word of advice?

Suppliers often bank on countries in emerging markets and not on cities. This is a huge mistake because there are so many huge cities in emerging markets, cities with more than 5 million inhabitants.

Just as an example, there are 40 countries in the EU which have less population than Moscow. As a retailer, and also as a supplier, you have to focus on these mega cities, not on the country. This is an area in which Planet Retail has invested significant research.


Read part 1

Photo: (top) Bianca Casertano during AECOC conference, by Roger Castellón

See some of our photos from this year’s AECOC Fruit and Vegetable Congress


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Understanding the rise of discount and convenience stores

Planet Retail forecasts that over 2014-19, discounter Lidl will see its parent, Germany’s Schwarz Group, log sales growth of 4.8%, well above that of Western Europe’s next biggest retailers – France’s Carrefour (2.6%) and the UK’s Tesco.

Why are the discounters growing so fast in Western Europe? That and other big trends were addressed by Planet Retail’s Bianca Casertano while speaking at the AECOC Fruit and Vegetable Congress in Valencia in June.

The Frankfurt-based retail analyst set the scene by saying that in the next four years, big box stores – such as hypermarkets and superstores – will remain the dominant retail channel. But while their sales growth is slowing (their compound annual growth rate of 1.9% will be mainly due to inflation), that for convenience (5.7%) and discounter stores (4.6%) is another story.

Bianca slide 4 Western Europe Channel Sizes by Sales .png

Planet Retail forecasts that over 2014-19, discounter Lidl will see its parent, Germany’s Schwarz Group, log sales growth of 4.8%, well above that of Western Europe’s next biggest retailers – France’s Carrefour (2.6%) and the UK’s Tesco (3.9%, though the weakness of the Euro makes its CAGR look much stronger than it really is.) The German discounter Aldi is expected to achieve 4.3%.

Over 2009-2019, the big box format store segment will drop from 33% to 28%, losing 5 percentage points of market share, “which is massive.”

The winners will be the discount and convenience stores,” Casertano said.

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Shwarz Group’s Lidl Poland (source Planet Retail).png

What superstores should do

Demographic changes lie behind the big box decline. There are more older people, one person households, smaller families, and people without cars or without enough money for petrol. More people either don’t want to or don’t need to do a big shop once a week, or perhaps prefer to shop on a daily basis. This is really the problem now for the hypermarket operators, Casertano said.

“Big box won’t be the format of the future, there will be a shift towards discount and convenience stores, to inner city locations – this will be the really, really huge trend.”

To counteract this, big box chains need to become more attractive. An example is France’s Casino group, which now offers bulk buying similar to that usually associated with ‘cash and carry’ operators, and a ‘drive‘ (‘click and collect’) format.

Another way is to focus on food service, such as with restaurants. The bottom line is it has to be a nice experience to go to a hypermarket and too often it’s not, she said.

Casertano also said the big box retailers need to localise store management to ensure their assortment meets local needs. “This will be key in the future.” Metro Group, for example, has recognised this and has completely different formats in the south and north of Italy. It costs more, but in the end pays off, she said.

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Metro Group: the Metro Cash & Carry store “Casa dell’ HoReCa” in Rome locates fresh and frozen fruit and vegetables within one department to help clients save time. (Source: Planet Retail)

“The flight to convenience”

Meanwhile, Casertano mapped a shift in retail towards small, city-centre locations, something Tesco has adapted to quite successfully with its Tesco Express stores. “There’s also a trend towards franchising, because investments are much lower,” she said, citing Carrefour Express as a good example in Spain.

And she said Migros, Switzerland’s largest retail company, provides a good example of a food service focus in a convenience store with its Bio Take Away outlet, under Zurich’s main train station, which offers only organic products and has a high proportion of fruit and vegetables.

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Discounters now softer, more sophisticated

Casertano said the discounters are “growing so massively” not because they are opening more stores but because they have evolved, going from a hard, ‘no frills’ discount format to one cleverly taking the best of every channel.

For instance, some now sell multi-packs that copy the bulk buy attraction of the ‘cash and carry’ stores; they offer specialist food ranges, fresh fish and more brands, to be more like supermarkets; and are found in inner city locations and with more food-to-go, like the convenience stores.

Casertano said this convergence is occurring across all retail formats – the lines between hypermarkets, discounters and convenience stores are blurring. Hypermarkets are thus merging more with e-commerce and discounters – Carrefour, for instance, has discount areas in the middle of its outlets. This blending will increasingly be the trend, she said.

Online grocery not so lucrative

Grocery e-commerce is gaining importance and more retailers are rolling out additional services including ‘click and collect’ and home delivery. But it’s not easy to gain an edge in e-commerce because the discounters‘ advantages (cost savings through lower overheads for staff, handling, supply chain, and limited range) mostly apply in-store, not online.

“Lidl, for example, has an online shop, but just because customers expect retailers to. It’s not very profitable. I only know a very few…retailers who’d say their online business is profitable,” Casertano said.

She also stressed the risks of over-generalising and the need to remember that markets vary. For example, drive-through grocery collection works well in France but so far not in Germany.

Use the power of fruit and veg to influence impulse buying

Casertano urged the many retailers at the congress to invest in store refurbishment and make their fruit and vegetable departments more appealing.

“The first thing you see when you enter a store is the fruit and vegetables, and this is key.” People often base their shopping on the produce they buy there, such as choosing a red pepper on promotion because it looks nice and is cheap, and then deciding to buy other products, such as minced meat and rice, to fill it. “And all these articles are based on the fruit and vegetables they bought.”

This impulse buying is a huge advantage offline retail has over online. “You have to make these departments more attractive – this is really, really important,” Casertano said.


TOMORROW: Find out more about what these changes imply for the fresh produce assortment in stores when we publish part two of this article, an interview with Planet Retail’s Bianca Casertano.

See some of our photos from this year’s AECOC Fruit and Vegetable Congress


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Sainsbury’s sales drop a shockwave for market


Big structural changes behind malaise ‘set to descend’ upon the UK’s Big Four grocers, Planet Retail says


The 2.8% fall in sales reported by Sainsbury’s for its second quarter marks a “watershed moment” for both it and the wider UK grocery industry, according to David Gray, retail analyst at Planet Retail. “The sharp decline in like-for-like and total sales at the retailer will send shockwaves across the market. First it was Tesco, then Morrisons, and now even Sainsbury’s is reeling from the effects of seismic structural changes rumbling across the UK food sector,” Gray said.

The shift is akin to long-term climate change rather than the temporary effects of a perfect storm and no one is immune to the effects, he said. “The hard discounters are just one factor driving this change. Shifting shopper habits – consumers shopping little and often at convenience stores, smaller online baskets, households wasting less and evaporating hypermarket impulse spend – are all underpinning this shift. With volumes already dwindling and values expected to hit negative later this year in the face of ever-diminishing price inflation, the situation can only worsen. All this makes it increasingly likely Christmas will be a complete washout for the UK’s major grocers.

“Sainsbury’s is also bruised by the effects of a price skirmish that is progressively heightening in intensity, into which it is fast being drawn through the Brand Match scheme. In the long term, industry-wide margins are likely to come under even more pressure.

“No gaping holes in the company accounts and a slightly less diabolical performance than Tesco are hardly achievements to shout about. Sainsbury’s will need to pull out all the stops over the next few months if it is to escape the worst of the malaise set to descend upon the UK’s Big Four grocers,” Gray said.

Source: Planet Retail press release

Photo: © Copyright Andrew Abbott and licensed for reuse under this Creative Commons Licence