This week we speak with Jaime Navarro Rous, Country Manager for Spain and Portugal, to understand how COVID-19 is impacting life and retail in Iberia.
Q1 - Are there certain store types that performed better than others during the lockdown?
After the 2008 economic crisis, unemployment figures in Spain reached 25% of the active population. As a result of the lack of consumer purchasing power, discounters and private label grew to capture 50% of total retail ACV (all-commodity volume). The growth of this channel was driven by four leading retailers, two local (Mercadona and Dia) and two from Germany (Aldi and Lidl).
Under the COVID-19 crisis, proximity stores and small supermarkets have captured the largest share of consumer sales, while larger stores have seen less shopper traffic as most of them are located outside the city centres where people could not travel to because of the lockdown. Once again, the four leading discounters have been in the right place at the right time, a credit to their store formats (small to medium-size stores in city centers) and have seen strong results in Q1 and Q2 this year.
As a consequence of the severe lockdown we have had, we are expecting a new and very strong economic crisis to take place as of September, with a massive loss of jobs and a GDP decrease of more than 13% for the year. Discounters will once again stand to gain, leading to reduced space for branded products.
Q2 - To what extent will the decline in tourism impact the grocery industry?
Tourism in Spain is a critical sector, accounting for around 20% of GDP and responsible for around 5 million direct jobs. If you bear in mind that Spain has a population of about 45 million and receives more than 70 million visitors each year, you can see how vital tourism is to our economy. Most visitors come during the summertime, and the 2020 summer tourism season has for the most part, passed and been lost.
Many hotels, bars, and restaurants are unlikely to recover and are not likely to be at a minimum profitable capacity until at least the Easter holidays in March of next year. So many have decided not to remain open at all, which is logical when you consider that they have to bear the expenses of people, supplies, taxes, and other running costs if they stay open at sub-optimal revenue levels. Of the approximately 175,000 bars, hotels, and restaurants in the country, more than 50,000 of them are expected to close for good. The impact on the grocery industry will vary by region and food category. In the Balearic, Mediterranean coast, or Canary Islands that rely on tourism, for example, the impact is huge. However, the overall impact can be partially offset by grocery stores capturing back some of the Horeca (Hotel/Restaurant/Café) sales that have evaporated during the lockdown.
Q3 - How are Spanish grocery retailers keeping pace with the sudden and rapid demand for online orders?
The rapid development of e-commerce is one of the most evident impacts of the COVID crisis on retail. Brick and Mortar retailers are adapting fast so as not to be overtaken by pure players such as Amazon. New logistics platforms are being created to support this growth, with retailers at very different levels of development in these initiatives. Interestingly, the largest retailers have been slower to respond than the smaller ones due to their “inertia” to change being much more significant. The fastest ones to adapt to e-commerce have been the locally owned regional supermarket chains.
Q4 - Portugal was less significantly impacted by the virus compared with Spain. Why do you believe this was the case?
In Spain, we had a newly appointed and inexperienced government in place just when the crisis started. In Portugal, they had an experienced one in place. Portugal reacted very quickly in early March by implementing border closures and restrictions for travellers, while in Spain, the government opted not to cancel large public gatherings and events that were politically important to them. When the Spanish government eventually realized the degree to which the pandemic was spreading uncontrollably, they had to react with one of the most severe lockdowns of all EU countries. This led to the country being completely paralyzed for three months across all sectors except for food retail. In Portugal, they avoided the need for a severe lockdown as the virus has been kept under greater control from day one.
Spain’s new government is represented by a collage of people coming from the Socialist and Communist political wings. Thus, there were differing ideas of how the crisis should be managed. Key cabinet positions were filled by individuals who were not necessarily specialists in the areas that they were overseeing. In contrast, Portugal’s Health Minister is a well-known surgeon as with other Portuguese leaders who were also well-known professionals in their respective sectors.