UK grocers face £ 250million loss
The UK grocery industry could see profits cut by nearly £ 250million as a result of increased online food shopping during the pandemic, new research from Euler Hermes has found.
The leading trade credit insurer estimates that for every percentage point that e-commerce increases its share of the UK grocery market, retailers risk losing up to £ 246million in profits in the additional costs associated with the online execution. E-commerce currently accounts for 12% of the revenue generated by UK supermarkets, making it by far the most exposed operators compared to their European counterparts. In France, the market share of online sales is 8% while it is less than 4% in Italy, Spain and Germany.
European food sales increased by more than 5% in 2020 – twice the average annual growth rate observed since 2010 – and by an additional 2.4% in the first half of this year despite the easing of Covid restrictions. Euler Hermes forecast takes into account UK retailers operating with an EBITDA model of 3.7% (European average) and profit margins of -10% for online execution. More optimistic modeling with profit margins of -5% and 0% would still see the subsector’s profits fall by £ 156million and £ 66million respectively.
As retailers continue to face supply challenges, the trade credit specialist expects the dual threat to market share and earnings will prompt retail boards to step up investment in their businesses. digital capabilities to establish profit parity between their online and physical operations.
The findings are contained in a new report from Euler Hermes, European food retailers: The bitter digital aftertaste of Covid-19 legacy. The report points out that every percentage point of online grocery sales in the euro area threatens € 13.6 billion in sales and up to € 1.9 billion in profits (4% of the total).
Aurélien Duthoit, Senior Sector Advisor for Macroeconomic Research at Euler Hermes, said: “The UK’s already well-developed appetite for online grocery shopping has left it overexposed by increasing household demand. during the pandemic. As we move towards the traditionally busy ‘golden quarter’ amid disruption and rising costs along the supply chain, it is imperative that retailers are able to respond effectively to any further increases. of the online application.
“As grocers seek to attract customers to their stores after successive closings, they should look to pivot their investments to accommodate a sustained increase in e-commerce. Investments over the past 12 months have rightly focused on expanding online capacity, but more sustainable models will need to prioritize profitability, including an overhaul of the current logistics infrastructure and wide adoption. new warehouse automation technologies.
“We also expect the nascent partnerships between traditional retail brands and food technology companies to continue to flourish, whether they are delivery specialists, dark store operators or logistics companies offering warehouse software and services. “