What will 'Supermarket 2.0' look like? We see a scenario where addressable markets rise >5x, EBIT multiples expand ~2pts and ROIC grows.
Supermarket 2.0: Larger market & higher returns = higher multiple
Contrary to the view that traditional supermarkets will be disrupted by online, we see a scenario where the ‘Supermarket of the Future’ could see addressable markets rise and grow.
This scenario is driven by the opportunity for supermarkets to develop a broader ecosystem to leverage:
- Trusted brands;
- High visitation;
- Rich data sets; and
- Broad customer reach.
Our analysis of 12 supermarkets in 6 markets suggests the prize is large, with grocers well positioned to capitalise on the opportunity, but there is no clear leader today. To assess which players are best positioned, we developed the UBS ‘Supermarket 2.0’ matrix. We believe the opportunity is more immediate in developed markets that have experienced discounter disruption and less relevant to markets yet to position against discounter disruption.
What did we learn from our global review of 12 chains in 6 markets?
There is no clear global leader today. Retailers are still focussed on winning at the core (service, range and price) but are now exploring how to grow and win in the age of the empowered consumer (pull vs. push model). While themes are similar across the case studies, no chain is yet to successfully execute. The consistent themes across global players are to leverage brand trust, customer engagement (traffic) and rich data sets to capture a greater share of wallet and monetise visitation (e.g. advertising). Supermarkets are in the early stages of building ecosystems to increase addressable markets.
What is the opportunity for listed grocers?
The opportunity is to create a true pull model. The 'winner' under this scenario will develop tailored formats that cater to convenience and develop a broader ecosystem (leveraging data) while delivering a clear, consistent value proposition.