The grocery industry will start 2018 with major shifts occurring in their industry with the behemoth online retailer Amazon flexing its muscles with the purchase of Whole Foods and their innovative grocery shopping experience, Amazon Go. Competitors such as Kroger have responded by contemplating divesting of their convenience store business so they can retool their stores with the newest digital payment and shopping platforms. Walmart, the largest retailer in the world, is well ahead of the transformation curve, launching programs that merged digital with physical with new in-store online purchase pick-up stations.
In Canada, Loblaws recently acquired Shoppers Drug Mart, allowing the leading grocery retailer to extend its private label President’s Choice to every corner and neighbourhood across the country. I am sure we will see other grocery retailers beyond the CVS/Target deal doing the same in hopes of extending their brands and fending off competition. Besides the obvious direction that will see retailers exploring ways to drive growth and solve the decade-long challenge of improving performance in center of the store, and looking to improve online and home delivery shopping, we are providing the following predictions for 2018.
Prediction #1: The world will get smaller
With the growth of immigration, urban markets will become more ethnically diverse, driving the need for retailers to offer a wider range of international brands. We have already seen this impact in Canada, which is one of the most ethnically diverse countries in the world, with the launch of Sobeys Chalo! By FreshCo in Brampton. Grocery retailers will start providing greater product offerings to appeal to these growing and diverse segments of the population. It’s a very smart move as immigrants tend to have larger families and a stronger family nucleus.
Prediction #2: Online retailing will solve the center of the store challenge
We conducted a study several years ago on the role of packaging in an online retail world. What we found interesting is the affinity customers have for buying their everyday staples online. Typically these tend to be significantly larger orders, as customer buy multiple items of their favorite products. As the cost of delivery to the home slowly declines, we foresee a very different center-of-the-store supermarket layout, with fewer dominant brands and a wider range of ethnically diverse offerings in a smaller footprint. The space gained by the reduction of the center of the store will support greater fresh food platforms ranging from unique restaurant offerings to a wide range of meal replacement programs as millennials spend less time cooking.
Prediction #3: Immersive retailing will happen
With the introduction of the iPhone X and the soon-to-follow competition, the mobile industry will usher in a new augmented reality world right at consumers’ fingertips. No longer will retailers rely solely on printed signs, as marketing at the shelf level will become a whole new experience. Customers will be able to identify items on promotion, get menu ideas and friendly reminders of the items needed at home, all through their mobile device. Retailers will be able to tell a more compelling story about their private label brands, such as where they are sourced and how they are made. AR will allow for quick and seamless transition of marketing material, making life easier for retailers.
Prediction #4: Online ordering will move beyond mobile and online
We are witnessing packaged good companies such as Proctor and Gamble partnering with Amazon, launching in-home wifi-enabled buttons on their washing machines, dryers, fridges and other home appliances, allowing quick reordering of their favorite brands. No longer will customers need to go online to a website to order products – the transaction will move much closer to the moment of need than current shopping behaviors. With smart fridges and the introduction of IoT we will see the elimination of shopping list replaced with automatic pre-order systems that work without any human interaction. We believe there is an opportunity for supermarkets to tear a page from the desktop printing playbook by partnering with fridge companies in ensuring their retail banner is the defacto site where orders are placed.
Prediction #5: The industry will become more fragmented before it consolidates
The above four predictions will lead to a much more fragmented retail channel, with drugstore chains competing with supermarkets and online retailers for a share the customer wallet. Supermarket chains will continue with their segmentation strategy, launching new store formats and concepts to appeal to different types of customers. In Canada and the UK supermarket industries have developed different types of urban and suburban stores supporting different customer needs and behaviors. We predict this trend will continue to not only drive more marketshare, but will validate potential approaches and determine which delivers the greatest return. However, we predict this trend will reverse as the market consolidates and chains explore greater market efficiencies, since supporting a broad range of formats is cumbersome and expensive.
Change in the supermarket industry has been slow due to the complexity and cost of their distribution models. However, with new disruptive entries and an emerging customer segment that does not own a car and spends less time cooking at home, we foresee greater and more rapid change occurring in 2018 and beyond.