Food is essential for life. That’s why people have had a deep emotional bond with it since time immemorial. But over the decades, this relationship has gradually given way to considerations of efficiency, optimized logistics, and price. Emotionalizing stores and assortments, and increasing customer loyalty by using a tailored omnichannel model for grocery retailing offer potential for growth.
Grocery retailing continues to be characterized by fierce predatory competition. Growth is discernible only in individual segments such as discount retail. Changing market conditions (smaller families, urban living, trends toward organic and natural products, and demand for fresh produce, preferably sourced locally) are putting pressure on retailers with large outlets on the city outskirts. In addition, the market is dominated by the discount model, with discounters driving growth mainly by opening new outlets.
The industry also faces major challenges outside the perishables segment and in non-foods, where alternative channels are increasingly becoming available. These trends are now confronting discounters with issues such as expanding their assortments, regionalization, and, to a growing extent, sustainability. In the case of supermarkets, the trend is toward larger retail spaces, with customer service/regionalization and upgraded offerings as the main growth drivers. Midsize operators of organic retail outlets and convenience stores are continuing to gain ground.
Convenience and emotionalization of shopping in grocery retailing
Online concepts are still few and far between in grocery retailing and are currently being pursued by only a few isolated retailers. Attempts to compete via the online channel have either failed entirely or have been unable to generate significant growth. There are regional differences in online market shares ranging from the low to high single-digit percentage range. Overall, however, acceptance levels fall far short of those in other industries.
Nevertheless, the grocery retailing segment will also see a growing trend toward online shopping, whether this involves home deliveries or a combination of ordering online and collecting groceries from the store. Quick and easy access to everyday necessities and the emotionalization of shopping baskets tailored to individual customers will increasingly play a role here. These developments require grocery retailers to fundamentally rethink today’s largely communication-free shopping and develop personalized customer loyalty activities. Marketing efforts can no longer be left in the hands of the manufacturers alone.
In the future, grocery retailers will deliver fresh produce “direct to the refrigerator,” sort it and put it away. Access to the customer’s house and refrigerator will be enabled and controlled by a smartphone. Smartphones and online platforms will also play a key role in delivering information on the origin and ingredients of products, and will enable comparisons with other providers.
The role of manufacturers, retailers, and consumers
One of the important roles of grocery retail is to bridge the gap between manufacturers and customers. Sophisticated logistics processes enable large volumes of merchandise to be delivered to conveniently located stores. Discounters and supermarkets alike use state-of-the-art IT systems to manage hundreds or even tens of thousands of articles. Leveraging the available historical figures and transaction data, they ensure products are always available in the right stores at affordable prices. Things are also changing in this area: The Internet and capabilities for processing vast volumes of data (Big Data), including data from social media, are bringing manufacturers and consumers ever closer together.
This is why some retailers are trying out various approaches to direct logistics. After all, if customers will someday no longer have to travel to the store, someone will always have to make the trip to the customer’s house.
The traditional bundling approach in grocery retailing also presents new opportunities here. For example, it is relatively straightforward to regularly meet basic grocery requirements online, saving customers the trouble of purchasing these articles at the store. This makes shopping more convenient and increases customer loyalty.
The shopping experience, which is already being implemented using new concepts in other retail segments, will also play a role in grocery retailing. There will be flagship stores, but the value of discount stores is also in upheaval. Customers should feel “at home” while shopping: personalized communications in appealing surroundings are intended to win the customer’s loyalty.
Developing online models and integrating these with classic brick-and-mortar approaches is also becoming increasingly important. To achieve this, it is essential to seamlessly integrate systems and media. Consequently, many retailers are currently investing in modernizing their retailing systems and integrating smart stand-alone solutions into the overall strategic landscape. Smartphones and tablets will continue to play a key role for consumers and retailers alike in the coming years. New forms of market development, payment, and personalized communication are being deployed, opening up new opportunities.
The challenge in grocery retailing is that the transformation must be achieved with even greater levels of efficiency and cost optimization than in other retail segments. We believe that the key to a successful transformation is a comprehensive understanding of the industry, coupled with a proven methodical approach and extensive experience of the complex interdependencies between processes, technologies, and organization itself.