Data and insight: It’s wake-up time
Consumer spending hasn’t fallen, it’s just going elsewhere, so the channel needs to take action and fast, says Tanya Pepin, Managing Director, TWC
I had the pleasure of speaking at the Scottish Wholesale Association conference a few weeks ago, and I closed with a challenge to every entrepreneurial, ambitious operator in the room: it is time for things to change. Not next year. Not when margins improve. Now. Right now.
As you’ll know, I am surrounded by data and I have to say, it makes for sombre reading. Despite views to the contrary, the latest figures from the Office for National Statistics reveal consumer spending is not in decline. Consumers are spending as much as they ever have, but this spend is now flowing away from wholesaler-supplied convenience retail and into a variety of other channels, such as direct-to-consumer platforms, subscriptions and delivery services that the independent channel simply hasn’t built alternatives to. Hospitality is performing better but its modest growth as a total channel is largely driven by inflation.
Over the past five years, consumers have experienced a 30-40% rise in food prices putting further pressure on how much they have to spend as wage increases have not kept up. The cost to do business continues to soar thanks to EPR, DRS, MUP, and tobacco and vape legislation, and the cost of running a business is higher than ever due to increased NI. These costs are driven by structural changes to UK business and are here to stay, unfortunately. And right now, the wholesale channel is caught in a difficult bind. As a sector built on tight margins, there is a ‘minimal cost’ mentality, which can limit the investment needed to respond to changing demands, evolving demographics and rising pressures. With limits on staffing and systems, the focus is on day-to-day trading, which results in less time to step back and think ‘big picture’.
HOW TO MOVE FORWARD
This situation, of course, carries risk. A cautionary tale that wholesalers will recognise immediately is that of vapes. The channel watched from a distance, but with limited resources to explore, as vape sales soared, having initially dismissed them as a complex, messy category while other routes to market moved swiftly. Several years on, for wholesale the opportunity cost was enormous and a strong example of how the channel can be bypassed when there is pressing consumer demand and wholesale does not keep up.
So how does the sector move forward and innovate? It is a challenge, but we must invest in the future, though I do advise proceeding with caution. There has been an often-repeated cycle where outside businesses, such as private equity, tech firms and b2c specialists, identify wholesale as an underserved but high-value market, swoop in with a product, platform or service without any real channel knowledge or understanding of the complexity at play, only to retreat, leaving wholesalers high and dry when the doors all prove harder to open than expected.
We’ve seen this with ERP providers who underestimate the complexity of wholesale back-office operations. With data businesses whose market knowledge didn’t stretch to spotting what the numbers meant in reality. And with consumer-facing communicators who failed to grasp wholesale’s nuanced messaging and intended audience, so expensive campaigns fall flat.
So what is the answer? It isn’t to distrust innovation – we must move forward. Instead, there is a need to ask better questions of those offering solutions and then find the right partners. Focus on those who demonstrate genuine commercial, and emotional, commitment to the sector. Knowledge and channel expertise matter. Track record matters. A business that’s invested in multiple wholesale clients has something at stake; a business chasing a fast return does not.
SUCCESS STORY
There’s a more optimistic case study sitting within wholesale itself. While retail can find itself in a race to the bottom on margin, there is better news in foodservice. Independent foodservice outlets are driving growth in hospitality, the market overall for the last 52 weeks is +2.5% on value, with chains at +1% and independents at +4.3%. Independents account for 45% of the market and are increasing share. This performance shows that consumers value independent hospitality and are voting by visiting them more.
There is no doubt that this approach can be replicated in retail. Those wholesalers that focus on their best customers and invest in excellent retail estates to create stores for the future, developed with the consumer front of mind, will quickly leave the rest behind.
STRATEGIC NUDGES FOR WHOLESALERS TO RETAIL
- Many suppliers are focusing investment into activity that shows their products are reaching the consumer. Have you got a means to do this in your wholesale business?
- Most suppliers are no longer motivated by wholesalers’ stock loading, they want to see product sell through. Can you show this?
- What services do you have in place to help your independent retail customers respond to changing consumer demands? For example, are you helping them with home delivery solutions?
- What advice do you have to help your independent retail customers meet changing consumer tastes? Do you offer top-sellers guides? Can you offer advice on emerging categories?
- Chilled and frozen are high-profile growing categories in convenience retail. Do you have a reliable fulfilment solution for your retailers?
- Retailers want great service levels AND good prices, so are you talking to/ surveying your customers and do you know for a fact that you are giving them what they want?
- Do you honestly know who your most profitable customers are? Not just the ones that spend the most?
- Have you segmented your customers based on recency, frequency and value?
- Have you done a gap analysis on your customers to understand what they are NOT purchasing?
- Have you got a robust reward mechanism in place to retain the RIGHT customers?
- Are you sharing this thinking with your broader team – are you asking for their ideas?
- Do you have a clear plan for growth or are you just treading water?
