BrainTrust Query: Is There a Grocer of the Future?
Through a special arrangement, presented here for discussion is a summary of a current article from the Mark Heckman Consulting blog.
As far back as I can recall, we in the supermarket business seem to have had a fixation with what our stores will look like in the future. Like all things that require only an opinion, there are many visions and views about this topic.
Adding to the fray, here’s my summation of the successful elements needed in a prototypical store perhaps as soon as five years from now.
Smaller, not larger (25,000 square feet of selling). With the emerging new channels and specialty retailers selling grocery, smaller stores will provide the shopper a more convenient, focused shopping experience, and also enhance the retailer’s profitability position.
Far fewer SKUs in center store, but with access to an online store where coveted commodity items can be ordered and waiting for the shopper at a delivery door. This is already happening to some extent in other classes of retail trade, but supermarkets are under pressure to better understand the optimal assortment formula, especially when it comes to less frequently purchased items in the "long tail."
Fewer cashiers and more scan-as-you-go or self-checkouts. Mobile wallets and other technological advances can only achieve ROI if labor reduction and other efficiencies are achieved with the use of these new tools.
Fewer "racetrack" layouts in favor of distinct stores-within-a-store. Studying shopping patterns in the store will yield to some significant innovations in department and category adjacencies. These moves will culminate in some dramatic new store layouts
And finally, much more interaction with the in-store pharmacy, which will also become a nutritional resource center. With Boomers reaching retirement age in masses each day, they will look to supermarkets in increasing numbers not only for medications, but also compatible nutritional solutions to keep them active and fully in denial of their age.
There’s nothing here that is terribly controversial, and yet for many retailers, there is much work to do and significant investments to be made to move from the operational-oriented store they have today to a more consumer-centric offering.
Discussion Questions
Discussion Questions: What’s your grocer of the future look like? Which of the predictions in the article make the most sense? Are there any you would add or delete?
To be contrary, I’m going to disagree with Mark. While I don’t see stores getting larger, smaller is not better when you need to go to multiple stores to fill your basket. Smaller stores are not necessarily more convenient, focused, or profitable.
I would agree that store-within-a-store concepts may grow, but I don’t think they will become the norm. They carry with it a complexity that flies in the face of many adjacencies that shoppers want and the ability to get in and out in a quick, orderly manner. As for self-checkout, I see more stores making them available because there is a demand for them — but I don’t see them taking over.
There may not be one “grocer of the future” prototype, but there are at least two trends at work that are also going in the general merchandise world:
1. The “barbell effect” is driving sales for huge, low-priced stores like Woodman’s as well as grocers like Whole Foods and Wegmans focused on assortment and service. Those in the middle are the ones losing share, unless they develop a clearer point of view one way or the other.
2. “Smaller is better”: Some of the fastest growth in the grocery industry is coming from stores like Aldi and Fresh Market, both offering tightly edited assortments in small footprints even though they offer different price points. It’s the same trend that is driving big box and discount stores to develop newer, simpler concepts.
My vision is to turn the supermarket into the “community’s place for wellness” with a commitment far exceeding merely adding on nutrition counseling and pharmacy services. The entire store, its corporate mission, its promotional and marketing programs, and its merchandising set should be dedicated to this vision. It’s a vision that plays to the many health & wellness themes now building velocity across America and promises to bring shoppers into the store to purchase more.
Supermarkets should — and could — assume a role as a go-to retail resource for health because supermarkets sell one of the most important ingredients of a healthy lifestyle — nutritious food. The many possible products and services include guidance on healthy eating; exercise; nutritional counseling; diabetes/heart health monitoring and health assessments/screenings; connecting the dots between diet, medications, OTCs, and supplements; and weight loss programming.
The models for this are the two leading drug chains which have successfully made themselves the go-to remedial health resource. It is interesting to note that, of CVS’s $107 billion sales last year, something like $80-90 billion flowed from healthcare products and services. The chain provides pharmacy management services, mail order prescriptions, in-store clinics, and more, as well as its base retail pharmacy business. In the drug store division, 68% of sales are from its retail prescription business. Is it a successful model? According to the chain’s annual report, it is responsible for nearly 20% of the US retail prescription market.
All these predictions make sense except for the one regarding the in-store pharmacy. Any business with a future must stop focusing on “boomers,” of which I am one. We don’t spend as much money as the younger generations for many reasons. From not having it to not needing it.
The one thing that supermarket executives must understand is that the supermarket is going to change dramatically. Unfortunately, I know of no industry with a poorer track record of adaption to change than the retail industry.
The future is increasingly looking like the past. Remember open markets? They are back. Urban customers want locally-sourced fresh products. Fresh bread, fresh meat, fresh produce. “Market” style displays appeal to customers’ longings for simpler times when you didn’t have to worry about what was on your plate. These products also command higher margins. I think the fresh and market-style merchandising has a lot of upside for grocers.
My grocery store of the future is more like a Whole Foods format store with lots of store-within-a-store like departments. I see lots of fresh foods, international foods, and of course all the technology to support it. Our smartphones will play a significant role in keeping us informed and allowing us to self checkout. Fewer cashiers but more staff in the specialty departments to help us with choices, and extreme customer service will be in my store of the future. RFID? I should live so long as to see it in my grocery store of the future.
The store of the future, just like the future itself, hasn’t been clearly envisioned yet. An advancing mix of cultures, technologies, costs, taxes, regulations and happiness concepts will all have fingerprints on tomorrow’s grocery store(s). Then one day a creative young mind will innovatively piece together everything and the process of selling groceries in tomorrow’s store(s) will begin anew … and all over again.
A chain of mostly smaller stores, with some larger store formats creating a “hub and spoke” model may give shoppers the balance of convenience and choice. In the smaller/closer store locations, I would look for fewer SKUs (obviously) and a layout focused more on “solution centers” for meals, as well as a clearer path to options for healthy selections.
I believe that technology is the key to the store of the future. The transformation of the grocery store will come full circle. In the 1800s we had the corner grocery store that was responsive to the consumer. When mom came in and shopped, the corner grocer got to know her and all of her needs and wants. The grocer tried to satisfy the needs of his neighborhood with an efficient assortment. The problem was his effectiveness was poor and his options were limited.
We then moved into a phase where effectiveness was vastly improved, but the personal touch was missing.
Technology both in the hands of the consumer and in the hands of the retailer will close that circle, making the retailer responsive to the consumer while being extremely effective.
As the stores become smaller they will become more nimble to the consumers’ needs through constant interaction between the consumer and the retailer and collaboration between the retailer and the supplier.
I can imagine the prominent store in the suburbs will concentrate on perishable products and prepared products. Items like canned goods, cleaning supplies, and other nonperishable items will be delivered directly to the home by UPS or USPS. Many packaging changes will occur and cans will be largely replaced by film resealable packaging. Products that contain a lot of water (detergents, cleaning solutions) will be sold as concentrates. Many of these products will be sold directly by the manufacturer (P&G, Clorox, Kraft, etc.) to the consumer. Cutting out the retailer will increase supplier profits and lower consumer cost. Of course there will be some large stores that carry non perishable products for people who can’t plan or have an unforeseen need, but they will probably have higher pricing due to the expense of handling non perishables.
I like the quote “”The best thing about the future is that it comes only one day at a time.”
A “grocer of the future” assumes the concept of convergence will rule. The analogy is the cell phone market. Many features have been integrated into one hardware platform yet we have a divergence of products; the proliferation of mobile devices is undeniable.
Sometimes consumers (more accurately, shoppers) want convenience and sometimes they want experience. Eataly is a great example of the experience. So small format and mobile shopping walls would focus on the convenience and the Wegmans and Whole Foods of the world can position themselves as the experience.
I think it is safe to say that those in the middle will perish or drastically shrink.
One key point is missing. That is, what will the consumer of the future look like, and what will compel them? To get a handle on that, one merely need look at the crucial dynamic of a multicultural, “minority-majority” reality. To base any predictions on the old model of a “melting pot” will skew any future-casting over an abyss simply because that which motivated and influenced “Anglo” shoppers is far from what motivates and influences the critical, exploding segments of the multicultural consumer base.
The use of real-time scan based trading for DSDs to understand supply/demand is the biggest ROI for grocers in the future.
If we’re being controversial, Fresh & Easy seems to tick quite a few of the future store boxes. And it is posting the highest comp store sales growth in the US, >+20% on a 2-year view. From a low base, but how long did it take for Trader Joe’s to convince people that grocery shopping could be fun and funky? A decade or two? Tesco has lost nearly $1B since opening five years ago, and the path to profitability remains unclear. But it has turned the corner and in many cases as popular with customers as Trader Joe’s.
I agree with all these predictions. Shopping continues to evolve in all retail sectors and grocery will be no exception. The ability to personalize the shopping expereince and better engage with the the customer will drive these changes.
Stores will have shopping posters similar to what PeaPod has with their Shopmuting program in commuter train stations. Shoppers, who can touch and feel a sample package, will use QR codes on the posters to shop for CPGs to pick up in the store or have delivered.
My company deals with the future, providing location-based services in-store.
However, as a brand guy, I’m enjoying Trader Joe’s radio campaign being run here in Oregon, where they position the digital screens and similar impositions used by larger retailers. Trade Joe’s is presented as the ‘quiet haven’ where you get to know people and aren’t overwhelmed.
Based upon the fact that the typical supermarket of today truly doesn’t look all that different from those of more than fifty years ago, we have to be honest and look at fundamental changes in our stores if we want to see results that differ from the past.
There are some good ideas in the article, however, I believe we get excited over small, incremental changes in “concept” stores, and we rarely push the envelope to create a new shopping experience from the ground up, without ANY regard to current paradigms.
Why should there be traditional aisles at all? Why aren’t more stores arranged by meal, rather than by category? Etc., etc. Let’s use our imagination just a bit, and leverage some innovations from other segments of retail with the help of the manufacturers.
When I think about the grocery store of the future, I do not foresee a “new prototype,” but rather the abandonment of prototypes altogether.
One-size-fits-all is now a quaint mass market concept. The market of the future is about mass customization (a phrase popularized by futurist Alvin Toffler).
The present shopper marketing trend implies a need for relevant assortments at the store level.
It also implies stores should be configured to fit their neighborhoods — in terms of scale.
It also implies stores should be designed for rapid and frequent re-configuration, to align with the increasing pace of change in their target markets.
The grocery stores will evolve towards smaller formats, closer to the customer, and be complemented by the endless aisle of mobile commerce. We already see the trend to smaller footprints globally, and the evolution of ecommerce including the Amazon try with Amazon Fresh
The future is always a guessing game, and one thing not mentioned is that there are a whole lot of towns and cities with very low incomes. A traditional store even one as small as mine must always try to bring value, as the Whole Foods, and Open Markets described above will not work, since many of the folks can not afford the higher prices. This is still happening in the majority of the country, and how we position our business greatly depends on the income of our markets. Keep it fresh, price it right, use technology where you can, and service the folks very well. These principles have worked since supermarkets were started years ago. Just my opinion, but keeping it real in the modern times still matters.
The vision posed in this article makes lots of sense, but still relies on a one-size-fits-all approach. Ideally, the store will be structured to address the needs of the best customer segments, with product groupings designed to fit the market-basket behavior of those segments.
At the same time, there is a big issue not addressed here. Many supermarket retailers make a bulk of their profits from display incentive payments from the manufacturers. A decrease in retail space may make sense in terms of customer experience, but if that shift reduces promotional revenue, then the store needs to make higher margins to compensate. Otherwise the current model simply breaks down.