Dr Vincent Yeo is a lecturer from Taylor's Business School at the Faculty of Business & Law. Taylor's Business School is the leading private business school in Malaysia, based on the QS Subject Ranking 2021 edition.
"Covid-19 this, Covid-19 that…" — Malaysians are numb to the situation and most people have got used to it. The resentment of it, however, is still present as it has forced Malaysians’ lifestyles to change drastically almost overnight. Generally, people are going out less often than before as many are wary of the possibility of contracting the virus.
Each time the government announces a nationwide lockdown, it is almost certain that grocery outlets will run out of stock stemming from two types of people. First, those who are panic buying and swooping products off the shelves to stockpile their home, which is unnecessary as the government has assured the people that there are enough necessities to last the lockdown.
Unfortunately, the irresponsible behaviour of some have led to more food waste due to the inability to consume the fresh produce before its expiry. According to the Solid Waste and Public Cleansing Management Corporation (SWCorp Malaysia), households are responsible for 44.5% of daily food waste, where 24% of the food waste is still edible — this is equivalent to throwing food away that is enough to feed almost three million people a day. A similar phenomenon is observed in Australia, where about US$10.3 billion dollars’ worth of food have been discarded since Covid-19 began.
Second, small businesses are buying in bulk to resell items at a higher price while the demand is still there, which is also called “scalping”. However, a bigger shift occurred in grocery retailing during and after the end of the first lockdown. As movements were restricted, consumers were forced to shop nearer their homes and could only access grocers that had more limited choices of goods compared with larger supermarkets. This allowed entrepreneurs to quickly start new independent grocers to try and fill this gap in supply and demand and capitalise on this opportunity.
The new and modern grocery stores propelled forward as they benefited from the proximity to their target consumers, instantly gaining demand and customers. In addition, the entire situation encouraged the adoption of electronic payment systems and digitalisation of the stores. A while ago, e-wallet systems had a hard time encouraging stores to adopt electronic and cashless payment systems. Now, each retailer has multiple payment systems to meet the demand as it is a safer method to pay. Furthermore, partnering with third-party delivery services grants ease of access to offline and online retail for a small transaction fee.
Compared with traditional grocers, this gives them an edge because omni-channel retailing means that they can access a wider market. Another added advantage is having a new, clean and modern look that appeals to shoppers. Most importantly, these stores being new themselves are a benefit as they play on the hedonistic behaviour of Malaysians who like to try new things — it is likely that shoppers will go to the stores once to appease their sense of shopping pleasure. The neighbourhood grocery stores have also become a focal point for social interaction as residents now shop in closer proximity than in the pre-Covid era.
The supply chain for fresh produce has been disrupted from its centralised system to deliver to large grocers in hypermarkets, supermarkets and the local wet markets in bulk. The new system requires a change in logistics to deliver to scattered locations in small quantities. The effects of this disruption mean that more logistic partners are required and businesses have had to pivot to find ways to cope with new grocery stores opening and plan new logistics routes. The new stores differ from the existing chain grocery retailers by offering a wider variety of imported goods that cannot be obtained at those locations.
This competitive advantage arises because modern grocery retailers are leveraging a more sophisticated supply chain that allows them to have more variety while still enjoying economies of scale. Consumers are willing to spend more since they are stuck at home and the essentials purchased are for personal and family consumption, which explains why the grocery retail market still grew by 2% despite the lockdown. Grocery stores will continue to enjoy this stable and steady demand, especially from housewives and senior citizens who prioritise easy access and convenience.
Saturation has begun as the number of grocery retailers has increased dramatically in urban areas. Moreover, these grocers face the threat of chain grocers and chain supermarkets as they continue to focus on cutthroat promotional prices and competitive pricing strategies. It is now up to the independent grocers to foster customer loyalty through product and service differentiation as they have the freedom to control the quality and diversity of their offerings.
A more pertinent question is this: Will these grocers continue to be relevant when the nationwide vaccination programme is completed? Only time will tell whether sundry shops and independent grocers will be able to endure in this extremely competitive landscape.
This article was first published in theedgemarkets.com on 18 May 2021
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