PESTEL analysis of the grocery and supermarket (retail) industry
This detailed PESTEL analysis of the grocery and supermarket (retail) industry examines how the industry is affected by macro factors globally, with special references to the USA, the UK, the EU, and Canada. Grocery is one of the leading industries in many countries and a big contributor to the GDP.
The grocery and supermarket industry is a large and complex one, with a variety of different players involved. It includes everything from large supermarkets to small convenience stores. The industry is highly competitive, with stores competing on price, variety, and convenience.
Political factors that impact on the grocery and supermarket (retail) industry
Global political stability is essential for the grocery and supermarket industry to thrive. Many of the top retailers such as Tesco, Walmart, Carrefour, Kroger, Sobeys, Lidl, Aldi, and Costco work with both domestic and international suppliers. If there is any problem with the international suppliers, it will have some kind of impact on the retailers.
Political challenges may impact on the grocery and supermarket industry in many different ways. For instance, new regulations after Brexit have affected the costs and increased delays to bring goods to the UK from the EU. It is estimated that approximately 80% of food imports to the UK come from the EU (Walker and Mugudubi, 2021).
Demonstrations against global retailers in many countries are not uncommon. For instance, many people have protested against Amazon in several French towns and cities and accused it of urbanising farmland (Aljazeera, 2021). Similar protests have been seen against some other global retail giants in many countries.
Economic factors that impact on the grocery and supermarket (retail) industry
Economic circumstances impact on the grocery and supermarket industry directly. People with jobs and disposable income are likely to spend more on groceries than those with financial limitations. Likewise, supermarkets cater to the needs of different customers differently.
For example, basic and value products are for people with financial limitations, whereas premium products are for those who have no financial worries. Lidl, Poundland, and Aldi cater to the needs of budget-constrained customers, whereas Waitrose, and Marks & Spencer appeal to up market.
High inflation affects the grocery and supermarket industry badly. Due to high prices, and cost of living crisis, many customers struggle to purchase the products they need which result in less sales for the supermarkets. However, some companies have been accused of increasing prices unreasonably during the time of high inflation.
According to a report by JPMorgan Chase (2022) many customers both in the UK and the USA have tightened their purse strings in response to the rising cost of living. They are more than willing to shop less overall.
High property rent, local authority fees, and tax rates increase the operating costs of the supermarkets which in turn increase the selling prices of the products. Last few years were difficult from many economies; however, things are expected to get better in coming years which is a very good news for the grocery industry.
Social factors that impact on the grocery and supermarket (retail) industry
Exploring social factors is the next stage in the PESTEL analysis of the grocery and supermarket (retail) industry. Consumers have developed online shopping behaviour in the past several years. In response, many retailers have introduced online shopping and home delivery systems.
Many retailers in the UK, the USA, Canada, Australia, and many other countries now cater for products that address the needs of people with different ethnic backgrounds. In fact, the global ethnic food market is expected to grow rapidly in the next 5 years.
Similarly, demand for vegetarian and vegan products is also increasing rapidly offering good opportunities for the retailers to seize. Consequently, many companies are responding by offering more of these products. This trend is being driven by the growing popularity of plant-based diets and healthy living.
However, the more people become aware of the consequences of sugary products, the less will be the demands affecting a huge number of products sold by the retailers. Consumers are increasingly focused on health and wellness, and this is having a major impact on the grocery industry.
Grocery retail industry is going to grow in Africa, Middle East, and Asia because of favourable age distribution (Wunsch, 2022). This is also because many people are coming out of poverty.
Technological factors that impact on the grocery and supermarket (retail) industry
Technology has dramatically changed the ways supermarkets operate. Human-served checkouts have been replaced with automated machines. Most retailers have electronic loyalty cards and inventories have long been computerised. They also use social media to promote their products.
Automation is becoming increasingly common in the grocery industry, as companies look to reduce costs and improve efficiency. It can be used for a variety of tasks, from stocking shelves to taking orders. This technology is becoming increasingly advanced, with the ability to automatically sort and stock products.
Artificial intelligence (AI) is also becoming increasingly popular in the grocery industry, as companies look to improve customer service. AI can be used for a variety of tasks, such as predicting customer demand and helping stores optimize their inventory. It can also be used to analyse customer data and make personalised recommendations.
Online shopping is one of the biggest trends impacting the grocery industry. Many stores are increasingly offering online ordering and delivery services, making it easier than ever for customers to shop from the comfort of their own homes. This trend is particularly popular among busy people who do not have the time to go to a store.
However, one of the challenges for the retailers is the lack of skilled IT staff at physical retail locations. Similarly, loss of data and cyber insecurity can turn out to be challenging as well.
Environmental factors that impact on grocery and supermarket (retail) industry
Consumers are also increasingly concerned about the environment, and this is driving the demand for more sustainable products. Grocery stores are responding by offering more sustainable options, such as organic produce and locally sourced products. This trend is also being driven by the growing popularity of environmentalism.
Operations of the retailers have impact upon the environment. For instance, food packaging is directly responsible for several environmental problems such as pollution, and overcrowded landfills.
Waste is a major environmental issue in the industry, as grocery stores generate a large amount of it. This includes everything from packaging to food waste. Grocery stores must take steps to reduce their waste, such as using more sustainable packaging and implementing waste reduction programs.
Likewise, technology and devices used for frozen products consume a lot of energy and emit greenhouse gases. Therefore, retailers need to be in constant pursuits to reduce their impact on the environment.
Legal factors that impact on the grocery and supermarket (retail) industry
Exploring the legal environment is the last component in the PESTEL analysis of the grocery and supermarket (retail) industry. This industry is also highly regulated, with laws and regulations in place to ensure that food is safe and that customers are treated fairly. This means that all grocery and supermarket stores must adhere to certain standards in order to stay in business.
Consumer protection is a major legal issue in the industry, as it is essential to ensure that customers are treated fairly. Grocery stores must adhere to a variety of consumer protection laws, such as truth in advertising laws. Failure to comply with these laws can result in severe penalties.
Food safety is one of the most important legal issues in the industry, as it is essential to ensure that customers are receiving safe and healthy food. Grocery stores must adhere to a variety of food safety regulations, such as proper storage and handling of food. Failure to comply with these regulations can result in severe penalties.
Countries have different rules and regulations which impact on the retailers differently. For instance, retailers must pay at least the minimum wages in the UK. Likewise, the Equality Act 2010 protects people from employment discrimination in the country.
Several retailers were fined in the UK and the US by the relevant authorities for failing to comply with rules concerning waste management, food safety, and selling out of date food. Therefore, the retailers must exercise due care to avoid lawsuits and fines.
Summary of PESTEL analysis of the grocery and supermarket (retail) industry
It is essential for retailers to understand this industry and what is driving it, in order to stay competitive. From online shopping to health and wellness trends, technology, legal issues, and environmental concerns, the grocery and supermarket industry is constantly evolving and adapting to changing consumer preferences.
Companies must also stay up to date with the latest trends and technologies in order to remain competitive. They must also ensure that they are compliant with the law and taking steps to reduce their environmental impact. By staying informed and taking action, they can ensure that they remain competitive and successful in the industry.
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Last update: 16 January 2023
Aljazeera (2021) France: Hundreds protest against Amazon expansion, available at: https://www.aljazeera.com/news/2021/1/30/hundreds-protest-against-amazon-expansion-in-france (accessed 16 January 2023)
JPMorgan Chase (2022) Inflation and the Cost of Living, available at: https://www.jpmorgan.com/insights/research/inflation-cost-of-living (accessed 14 January 2023)
Walker, A, and Mugudubi, P. (2022) How is Brexit affecting UK supermarkets and shoppers? available at: https://www.kantar.com/uki/inspiration/retail/the-impact-of-brexit-on-uk-grocery-industry-and-shoppers/ (accessed 16 January 2023).
Wunsch, N. (2022) Sales value of grocery retail worldwide, by region, available at: https://www.statista.com/statistics/754878/grocery-retail-worldwide-sales/ (accessed 15 January 2023)
Author: M Rahman
M Rahman writes extensively online and offline with an emphasis on business management, marketing, and tourism. He is a lecturer in Management and Marketing. He holds an MSc in Tourism & Hospitality from the University of Sunderland. Also, graduated from Leeds Metropolitan University with a BA in Business & Management Studies and completed a DTLLS (Diploma in Teaching in the Life-Long Learning Sector) from London South Bank University.