Insight
Mass Retail’s New Challenges
Published March 17, 2024
- Retail, Beauty & Luxury
The delicate business of mass retailing
On February 28, 2024, the Club Les Echos Débats Prospective, in partnership with Wavestone and the IESEG School of Management, welcomed Dominique Schelcher, CEO of Système U, to discuss “The new challenges facing mass retail”.
Retail industry’s challenges
Xavier Baudouin, Partner, Retail & Consumer Goods at Wavestone, introduced the debate with a picture of today’s retail industry which faces an arduous task. It takes:
- Surviving in a saturated and highly competitive market, where growth prospects are mainly based on external growth strategies (Casino store takeovers).
- Adapting the offer and model to a fast-changing society (today, only 11% of households in France have more than four people, so the shopping cart has evolved considerably).
- Coping with high inflation over the past two years, which is forcing consumers to change their purchasing habits (32% say they are cutting back on food) and driving up energy bills.
- Meeting the contradictory demands of “Feeding France, at the best price, while limiting environmental impact”.
New consumer trends
Tomorrow, mass retailing will have to meet the new consumer trends and challenges of the 21st century:
- Even more online/offline hybridization of commerce: Consumers purchasing behaviors have become hybrid, which seems to translate into growth prospects for retailers (in 2024, e-commerce will account for 15.4% of Walmart’s sales, passing the significant $100 billion mark).
- More responsibility (environmental protection, but also animal welfare or human rights) expected by consumers: 69% of them want to consume food more responsibly… but 57% say they are not ready to pay more.
AI as a business booster?
63% of executives think so, identifying AI as the most promising technology for the future of their business.
- Many use cases are already in place: Carrefour generates shopping lists by integrating customer’s constraints (price, allergies) and Walmart uses a chatbot to facilitate negotiations with its suppliers.
- How can AI work in a responsible way? Extremely energy-intensive, AI is nevertheless intended to be green and ethical (energy optimization, carbon footprint measurement, ethical use of data).
End of the month or end of the world, human or digital, superstores or small shops, private labels or national brands, the challenge for “good” distribution may not be to give a firm answer, but to know where to draw the line.
Système U and retail
Interviewed by Dominique Seux, Dominique Schelcher shared his vision of retail.
- Tripartite contracts: an effective tool to ensure fair remuneration for farmers. Système U supports agriculture through tripartite contracts. Implemented for over 30 years at Système U, these contracts enable producers, manufacturers and retailers to agree on a fair price.
- The central buying service controversy: the Group relies on its European central purchasing, shared with German Edeka, to negotiate with some 40 multinationals.
- Good performance in 2023, caution for 2024: in 2023, sales rose by 8.4% (excluding fuel) with a slight increase in volume. This year, volume fell by 5% in January on FMCG products.
- Inflation under control in 2024: Dominique Schelcher announces that ¼ of prices will fall, but that increases are to be expected on products under pressure, such as coffee or milk.
- Independent group model triumphs thanks to competitive prices, and a broad product offering. Leclerc, Intermarché and Système U now share over 50% of the market, outstripping the integrated groups Carrefour and Auchan. In the end, discounters like Lidl did not come out on top in this price war, as they seemed less attractive. Indeed, when prices rose, consumers could not choose a product from a lower range, not offered in this type of chain.
- No Casino store takeovers for Système U: growth will instead rely on increasing its stores’ value, and on buying up local businesses.
- Inconsistency with Système U’s model: buyouts are limited to goodwill only, excluding real estate. At Système U, owners generally hold both.
- No Système U manager ready to take the risk of a takeover: it requires heavy investment in a context of crisis (30 to 40% of annual sales to buy a store).
- Close to home, human and affordable: the store plays a central part at Système U. Dominique Schelcher predicts that its small store concept (“Utiles”, 300/400m²) will be the fastest-growing over the next few years, and sees little future for (very large) hypermarkets, which are out of touch with consumer expectations.
- Investing to strengthen e-commerce activity without making pipe dreams. For some Système U stores, e-commerce accounts for up to 12% of sales, and Système U has invested 300 million euros to modernize its’ IS and support e-commerce growth. However, consumers are strongly attached to physical sales. They use drive-in when they don’t have the time to shop in store. With this in mind, Système U does not expect e-commerce to exceed 15% to 20% of its sales in the long term.
- AI at the service of performance and people. Already used to optimize warehouse operations and calculate promotional sales orders, AI will be the ally of Système U employees, helping them to limit tedious tasks and gain in efficiency for the company’s development.
