Have you noticed?
Supermarkets have been quite quiet lately — just don’t mention plastic bags…
There was a time when all you could hear was ‘cheap cheap’ or ‘down down’.
Does this mean that the ‘supermarket wars’ are over?
Not by a long shot.
The truth is that Coles [ASX: WES] and Woolworths [ASX: WOW] have been stepping up competition against each other. But they have also been losing market share from new entrants like Aldi.
The truth is that the battle for your meals is getting tough.
Increasing Competition for Supermarkets
Supermarkets are facing increasing competition…and it is not just from other supermarkets.
For one, there’s the meal kit delivery companies. Yep, those companies that deliver all the ingredients for a meal so you can cook it at home. They save you the time and trouble of going to the supermarket and coming up with the meals.
But let’s face it, who has the time to cook anymore? We’re all starved for time.
That’s why supermarkets are also battling competition from restaurants.
According to a recent report by Quartz, Americans are now spending more on eating and drinking out than in grocery stores.
Part of the reason has been that supermarkets have been engaging in price wars. But it is also because people are increasingly low on time, so they are eating out more.
The trend is also catching on in Australia. According to a recent report, the average Australian eats out two to three times a week on average, and households spend about $4,900 on eating out.
We are also eating out more…by eating in.
Let me explain.
There is a silent revolution going on in the restaurant industry, and it is a fight for your dinner table.
You only need to take a walk around some of Melbourne’s busy hubs like Chapel St during the evenings to see it. You will notice the army of delivery bikers waiting around for deliveries.
Or you can see it while you eat at your favourite restaurant. Many of them have now dedicated kitchen areas or separate entrances only for deliveries.
Yes, I am talking about food delivery services like Uber Eats and Deliveroo among others.
These companies are disrupting the food delivery scene, and on their way completely changing the restaurant industry as we know it.
According to Morgan Stanley, current online delivery sales make up around US$30 billion. But up to US$220 billion could be up for grabs by 2020.
Restaurants Are Going Digital
In a way, restaurants are going digital.
Food deliveries are battling head to head against each other. Yet they’re also fighting to increase their partner restaurant’s customer base.
How are they doing this?
For one, by creating virtual restaurants.
What is a virtual restaurant?
Well, if you look them up online, they look just like any other restaurant. Yet there is no option of eating in, they only exist online.
Uber Eats in particular has been working with partner eateries to create virtual restaurants from their kitchens. They are doing this as a way to increase cuisine options in different areas and maximizing kitchen space.
For example, if your restaurant makes sandwiches, you don’t need many extra ingredients to make salads. So, you could create an online restaurant that only makes salads.
This allows restaurants to expand their client base without having to give up any restaurant seating. They also maximize their kitchen use.
Yet, restaurants are not just expanding beyond their table capacity or cuisine type. They are also expanding across neighbourhoods.
By setting up ‘dark kitchens’.
Deliveroo, for example, has been experimenting with setting up kitchen containers in different areas and allowing partner restaurants to use them. In Australia, they recently launched their first delivery only kitchen.
This does not just make delivery times shorter.
The idea is to bring to the area restaurants that are currently outside their delivery zone. That is, restaurants can expand their delivery area without having to set up a whole new restaurant.
Restaurants expanding online means that they are no longer limited by location or table capability.
Supermarkets may worry about Amazon, yet — as The Sydney Morning Herald recently reported — the biggest competitor could be food delivery services:
‘Woolworths boss Brad Banducci is more worried about food delivery services like Uber Eats than he is about Amazon, and says the country’s largest supermarket will lose customers if it doesn’t address demand for “ultra-convenience”.
‘But Woolworths was feeling pressure from rapidly growing food delivery services like Uber Eats, Deliveroo and Foodora, which command swarms of delivery drivers using bicycles, motorbikes and cars to bring restaurant food to customers’ doors.
‘“We’re all competing for the family meal, and in that competition for the family meal the Uber Eats or the Deliveroos have made it very easy for you,” Mr Banducci told Fairfax Media after handing down Woolworths’ first-half results.’
How are supermarkets looking to fight back?
Well, for one, they are decreasing the size of the stores, and placing them in areas with high foot traffic. Both Coles and Woolworths are bringing in smaller stores to maximize profits.
They are offering ready-made meals.
They are also setting up ‘dark stores’. That is, stores that do not receive customers but instead only pack and ship online orders and deliveries. Both Coles and Woolies have already set up a few of these.
And, they are also setting up ‘grocerant’ stores. That is, a mixture of restaurant and grocery stores where you can shop for groceries and get meals to eat in or take out. The goal is to get you into the store as much as possible.
As News.com.au reported:
‘Opened last month, the Woolworths Metro store on Sydney’s heaving Pitt St Mall has been inspired by retailers on the choked streets of Hong Kong…
‘“We used to use a supermarket once or twice a week. What we’re building with this store is somewhere we serve you three times a day,” he said.
‘“The first thing you see when you walk in is a cafe where you can get breakfast and then as you go through the day you can get lunch and then, as you head home, there’s a dinner solution.”
‘And if you think Australians would turn their collective noses up at a supermarket flat white, think again. While Coke or bananas might be the top selling product in most Woolies, here takeaway coffee is by far the most popular single item.’
So no, supermarket wars are a long way from over, and they could be much larger than you think.
Editor, Markets & Money