Grocers have been emphasizing growth over the past several years, especially through the massive influx of digital offerings, but the slowing economy may be a time for them to re-examine the strategy.
Jordan Jewell, director, merchant growth strategy at VTEX, noted that even grocery giant Carrefour has been realigning its operations as part of a move from growth at all costs to an era of profitability.
In recent years, Carrefour has been particularly successful in Brazil, where it acquired Walmart’s business and operated as the largest retailer in the country. However, Jewell and Carrefour chief digital officer Sam James discussed how the company had been pivoting its strategy during the NRF 2023 — and Jewell believes the retailer’s takeaways apply to the grocery industry as a whole.
“They were really focused on growth,” Jewell said. “They had more demand online than they had in all their stores in Brazil at some points, and they had let margins get away from them. So this year, they’re really trying to say, ‘How do we continue to grow, continue to offer convenience, but also make sure it’s profitable as much as we can?’
“And I think that’s the challenge. Convenience is obviously important, but I think we’ve hit a period with the economy where you have to balance that.”
CONSIDERING UNIT ECONOMICS
Grocers need to be taking stock of how their services are affecting their margins on a granular level, according to Jewell.
The cost of delivery can add up, particularly when grocers are mitigating the cost or even offering it for free — a move that even Amazon has been pulling back from. Grocers carry a massive number of SKUs, many with low margins, and the added costs of staging delivery can quickly add up.
“I think it does come down to looking at the unit economics,” Jewell said. “What is this going to do for each of my products that I sell? That is why you’ve seen a pullback away from free delivery because it just was grinding away at all these companies’ margins.”
REFOCUS ON EXISTING CUSTOMERS
Grocers also should examine the share of their marketing budget spent on acquiring new customers versus retaining existing ones. Jewell noted that customer acquisition has become quite expensive, particularly online and through social channels, due to rising competition and less effective ads, which makes campaigns focused on getting the most from an existing customer base more appealing.
“This does impact grocers to a lesser extent, but it creates this need to refocus more on existing customers,” said Jewell. “About 80% of typical retailers’ marketing budget goes towards acquiring new customers, when in many cases the new customer actually isn’t profitable until they come back to you a few times.”
Finally, grocers should focus some of their efforts on areas that are proving to be very profitable, like retail media networks. Jewell noted that Amazon spends very little to get its ad space filled, and while other companies may not have such a massive audience, there is still potential for driving profits with little overhead by working with relevant brand partners.