FMI Speaks: What’s Next?
Someone attending the FMI Speaks presentation in Dallas yesterday wouldn’t have been completely wrong in saying there were not a lot of findings in this year’s report.
But that takeaway would be a mistake, according to FMI president Leslie Sarasin, as she urged the audience not to let the familiarity of the findings "blind" them to the "larger significance" of "stunning" changes shaping the grocery business today.
One of the on-going changes continuing to shape the business is the migration away from supermarkets as the primary place for consumers to buy groceries. Other outlets are now the primary grocery shopping destination for more than one in three shoppers. When consumers do shop at supermarkets, they are buying fewer items per trips.
The research conducted by Booz & Company, identified four key trends:
- Value-Seeking as a Way of Life – The "new normal" where consumers are continually looking for ways to save has become ingrained in the U.S.
- Technology as a Fact of Shopping Life – Consumers are using technology before and during shopping trips. This will only continue to grow.
- Online Shopping Eating Away at Center Store – The failure of companies to crack the online grocery code has not stopped others from trying. Consumers are already buying center store grocery products online and this is likely to become more common.
- Format Innovation Pointing to New Differentiators – The grocery footprint continues to grow in the U.S., but it is channels such as dollar, clubs, limited assortment grocery and supercenters that are adding space. Ms. Sarasin said retailers need to find ways to differentiate through merchandise selection, service, etc. in an environment where consumers have so many options to buy groceries.
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Discussion Questions
Discussion Questions: What do you think are the most pressing developments affecting the supermarket industry today? What responses are you seeing from retailers to these challenges? Which responses are working and which ones are not?
Value-seeking is not a new trend. What’s changed is that retailers have largely given up showing what the value is to a customer between say a $26 garden hose and the promo model at $6.
In a point-and-click world, this approach will lead to the most profitable, best solutions for the majority of consumers — the truly valuable products — being dropped because they are not perceived as “value.”
With few exceptions, supermarkets aren’t the cheapest place to buy groceries anymore, and consumers know it. Differentiation can come in the form of better customer service, ambiance, and perimeter departments and prepared food.
I think item-level inventory management is the most pressing development. UPC or SKU level is way too generic and outdated to conduct big data mining, real-time analysis and tracking.
I do not understand how anything else in terms of supermarket development can be implemented without implementing the infrastructure to support item-level inventory management.
Mainstream grocery stores are getting chipped away at by all these trends (as is all retail). Maybe it’s finally time for mainline grocers to really start mining their loyalty data. I know I’ll do everything in my power to avoid a standard grocery store and I can’t be alone. Figuring out who does shop them, what that loyal shopper really wants and needs, and driving toward delivering toward its most profitable segments is the greatest short-term opportunity. We’re seeing fits and starts, but it seems based only on price and promotion. The next generation needs to look at differentiating the customer experience.
It’s all about the rise of the power shopper.
Grocery shopping has evolved from a habitual, task oriented activity to a information intensive, value driven process. The rise of personal technology and the emergence of multiple alternative channels has enabled the shopper.
Grocery stores need to recognize this and learn to compete less on price and more on the value provided by offering a unique and entertaining shopper experience.
There are three ways to look at things, these “findings” from FMI for example.
1) As information: where we use the facts to explain current reality.
2) As knowledge: where we use the facts to change current reality.
3) As wisdom: where we use the facts to reveal possibilities others don’t see.
In my view 93% of organizations are stuck at level #1. 6% focus on level #2. and a mere 1% know what it means to see the world of possibilities.
So Ms. Sarasin is absolutely right — we can look at things in the usual shallow way or we can develop new ‘eyes’ to look deeply, to penetrate past the darkness of old mindsets to a world that awaits our belief.
The most pressing developments affecting the supermarket industry today appear to be 1) target marketing to personal values, and 2) a decline in the supermarket persona. Like their great old shadows, the wishes for supermarket survival lengthen as the sun declines.
To meet current challenges, supermarkets need to concentrate on giving customers “something to remember me by.” Happily, that is, like a sense of theater.
While price is very important to a great many people it isn’t the only important factor with newer successful retailers today. Yes, Aldi’s, Sav-A-Lot and other price-focused retailers are growing with price-starved customers. But consider also the growth of Trader Joe’s, Whole Foods, Wegmans, HEB, Costco and some others. Those retailers are capturing market share by the distinctiveness.
The marketplace is spinning down the ringing grooves of change and many supermarkets have fallen behind.
The consumer is sifting through a “complexity crisis” of their own. Multiple points of decision, and then multiple decision points for similar products at their destination. With consumers suffering from “time poverty,” and a “thinner purse/wallet,” it’s little wonder that shopping trips have been reduced from 150 to 99 over the past 20 years.
Supermarket retailers focused on mass-customization of their stores (meat and produce areas that fit the local store), loyalty programs, and a well-trained, customer-focused group of associates are the ones that succeed in this environment (examples around the block are Wegmans, H-E-B, Kroger, and Trader Joe’s).
Trend #3 will continue to negatively impact those food retailers who do not give consumers shopping options. Recent research that I conducted on Mature Millennials (older Gen Y) indicated the continued migration to online shopping. In addition, 5% of respondents in my national sample did not visit a supermarket in the preceding 30 days. The failure to address this trend may lead to a “lost generation” for traditional food retailers.
There are 5 five ingredients necessary for an individual or group to own in order for them to be a truly qualified prospect and only one to be a customer. Differentiation is by far the most misunderstood, and the second most commonly missing ingredient in the battle to identify prospects and transition them to customer status; money or being able to afford the product and or service is still number one. The way in which the public is migrating away from specific retailers or locations as in malls or super stores demonstrates just how little attention is paid to differentiation and the power it brings to the seller.
Differentiation is the tool used to control where, how, and from whom a qualified prospect enters the position and status of being a customer and given the identity badge most commonly called a receipt. The most successful companies in the fast food and convenience store industries use differentiation first as a survival tool and then as the foundation of global empires.
All four of the key findings in the FMI sponsored research represent enduring issues that brands and retailers must address. However, of these four, I believe that format innovation is the least appreciated and possibly least understood as an opportunity for competitive advantage.
To that point, with online shopping increasingly competing with center store, commodity products, retailers need to be thinking about new prototype stores that emphasis their ability to offer signature perishable products, services such as store pick-up and home delivery, technology interactions, and the most important of all, a design and layout that is driven by how customers like to buy, not by how retailers like to sell, with the latter still being the rule currently.
Most markets today are over stored with unproductive square footage. Stealing share by building new 100,000 square foot plus stores is rarely an option these days. Building or remodeling to a smaller, more customer-centric store is, in my view, a viable path for growth for many.
Let’s get real about this. How many people will actually walk into a grocery store, price shop, then leave and go somewhere else? My guess: Not many! Buying food is not the same as buying fashion you know. Grocery remains about location and then price. If you happen to live within a reasonable distance of a big box, it is highly likely that you will buy your bulk items there during your weekly or bi-weekly shopping trip. For other items, it tends to be all about location and what in particular you are shopping for. If I’m picking up a nice steak, I head for Fresh Market but for the daily deal, it’s Kroger. Both are in my neighborhood and on the main path. To get the most bang for the buck, the non-big box grocers would do themselves good if they would mine data and target their loyal customers with incentives. If I’m going to stop at the store on my way home to pick up something, my mind is more open to picking up something else while I’m there. That’s a great time to show me a deal that is specific to me!
It was gratifying to take the little survey, below, and see that almost 60% of colleagues see the innovation of conventional grocery as the key issue. You see the consistent “favorite” grocery winners (i.e. Wegmans, Publix, etc) and they are the chains where retailtainment (and value, of course) are key.
“Loss of market share” continues to be the most pressing issue. There are myriad additional challenges: supply chain costs, consumer empowerment, etc., etc. However, if grocers are simply losing shoppers to other retail formats, then everything else doesn’t matter.
Bottom line, retailers must STILL generate compelling reasons to shop their stores. No differentiation = No reason to shop there.