Melanie Sanders: The Grocery Battle over Fresh Food



More than 80% of Australian consumers cross-shop, making it critical for grocers to differentiate their offerings, beyond price. Bain research shows that high-quality fresh food is as important as price for today's shoppers. Melanie Sanders, a partner with Bain’s Retail practice, shares the four musts to getting fresh right and discusses the economics of fresh.

Read the Bain Brief: Why Grocers Are Battling Big Over Fresh Food

Read the transcript below.

MELANIE SANDERS: Grocery retailers continue to face challenges for growth. A study of about 2,500 Australian shoppers showed that shoppers continue to routinely cross-shop. About 80% of shoppers cross-shop. And interestingly, 40% of shoppers spend their budget outside their primary supermarket. When you add in the fact that you've got discounters increasingly growing their market share in many developed markets, it creates quite a tough set of conditions for growth.

Differentiation beyond price becomes really important in that environment. And our study showed that fresh—high-quality fresh food—is equally as important as price. Fresh is growing very fast in our baskets—2.5 times the growth rate of dry. We continue to want to eat more fresh. It has a very strong halo effect, and what I mean by that is, where you see more fresh in the basket, you also see more dry. So fresh is very important as a driver of preference and traffic.

The issue is that often, for supermarket chains, fresh is not where they make their money. And so how do you win in fresh and get the economics right? That's one of the biggest battles for supermarkets.

Of course it starts with having the right strategy: making choices about product range and balancing economics. It also means taking a whole-of-store economic view. If you just try and think about a business case based on fresh, it might not stack. But if you think about fresh in the total basket and the halo effect I talked about, then the economics do stack.

You also need to break down the barriers between the functional silos within a supermarket: merchandise, operations and supply chain. Decisions you make in merchandise have big implications for differentiation. But also, they have huge implications for the economics of fresh. So making those three functions work well together is absolutely paramount.

[There are] four things we say [that are] quite important to get right for fresh. You need to get the assortment right, because having a broader range often means higher loss and shrinkage. So getting that optimal pivot-point right is really important.

Getting the supply chain right is important. Obviously, having fresh, high quality produce means that you need to get it to the supermarket reasonably quickly. But most supply chains are actually built for cost optimization and not for speed. So thinking through how you've developed your supply chain is also really important.

Product presentation is a third factor that's critical. We want to see supermarkets that have highly abundant fresh. What I mean by that is, great arrays of fresh piled high, looking and smelling beautiful. But of course, what comes with that is high shrink and wastage. And that can impact the economics.

Lastly, you need to be very thoughtful about in-store labor. Many supermarkets are investing to make sure they've got specialists in stores who can talk about fresh, whether it's in the meat department or the bakery department. But again, that comes with some economic challenges.

And so making those choices is very important. Thinking through that for your given context as a supermarket chain is critical. It's not an option not to win in fresh. But you need to think about how to get the economics right.