Supermarkets are forecast to continue to grapple for market share over the next five years as economic conditions improve and consumer confidence increases further. As economic growth gains momentum, industry operators are likely to push premium lines that typically offer them a higher profit margin. However, the fast expanding discount segment is expected to suppress revenue growth in the short term. Industry revenue is forecast to increase at a compound annual rate of 1.5% and reach £174.5 billion in 2019-20.
The purchase of sellable goods is by far the largest cost faced by participants in the industry.Wages are the next largest expense and account for an estimated 8.8% of revenue in 2014-15, down from 9.1% in 2009-10. The average supermarket employs approximately 61 staff per store, a number that has been falling gradually due to increased proliferation of self-checkout technology and more express stores opening. Labour costs in this industry are not particularly high.
The adaptation of a contingent workforce has become an integral operational strategy utilised across most supermarkets, as the flexibility of temporary workers proves extremely efficient. The challenge of course lies in the accessibility of large volume workers and their training to ensure productivity and efficiencies are maintained to the same level as permanent workers.
Profitability is expected to remain lower than pre-recession levels thanks to supermarkets competing for market share. However supermarkets are also expected to exert greater control over supply channels, targeting online sales, employing cost-cutting technology and expanding into the high-margin express supermarket industry, which should offset the decline in profitability to an extent.
One key technology designed to limit costs is radio frequency identification (RFID). This system uses radio signals to identify individual products and can track goods through the supply chain. The technology enables better inventory management, more efficiency and allows retailers to forecast trends better. Although the technology is still in its infancy, many grocery retailers expect it will be an important industry tool in the future. Analogies have been made between RFID and barcodes, with RFID considered the next step. An added benefit of RFID and advanced web-checkout technology is the amount of data available to supermarkets about their sales. A product can be tracked from manufacturer to supplier to retailer and then trends in sales can be tracked according to location, time and date. This kind of information could prove invaluable in targeting products to appropriate stores, regions and months of the year.