Are retailers prepared for the changing grocery shopper?

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For several reasons, grocery shopping seems to be an increasingly frequent occurrence, though no longer a thankless chore. Shopper preferences and habits are driving up the number of trips, and the market appears to be on the cusp of a major shift in how consumers access food and household items.

Start with the numbers: Data from the Food Marketing Institute shows a slight increase in the average total trips per week, though not necessarily a smaller basket size. In 2012, FMI data showed shoppers visited stores an average of 1.2 times per week, spending $29.56. In 2017, the basket size was up to $34.61 with an average of 1.5 trips per week. The 2018 data showed 1.6 trips, though basket size is not yet available.

Kevin Sterneckert, chief marketing officer for Symphony RetailAI, first noticed the trend thanks to the company’s Conversational INsights and Decision Engine, described as an “AI-powered personal decision coach.”

“As CINDE was looking at over 70 million households across North America, [it]started bringing up this notion that there would be smaller basket sizes and more frequent trips occurring across the country,” he says. “As we dug in deeper, we saw that many companies who sell food — convenience stores, hypermarkets, supermarkets, clubs — are ramping up their fresh food category. They’re doing it because they see this as a competitive weapon against threats like Amazon.”

Walmart, for example, announced in late April that it was developing an end-to-end supply chain for Angus beef — more of a luxury item than the retailer had previously been known to carry.

As grocers have increased the quality and emphasis on fresh food, Sterneckert believes consumer preference has followed — and for good reason. “If you buy lots of fresh items, you’re buying less frozen, less canned goods, less boxed items.”

Consumer expert and “supermarket guru” Phil Lempert pegs it as people shopping at more stores. “They’re going to specific stores for specific items,” he says. “They might go to Trader Joe’s for frozen food and Whole Foods Market for produce. If you go back 15 years, people went to the same grocery store every week and bought everything there. Now, led by millennials and Generation Z, they’re shopping for the best value and the best quality, even if they have to make several trips to get it.”

Regardless of the nuances, one thing is clear: Grocery is undergoing a sea change, with more emphasis on fresh food.

MORE FREQUENT TRIPS

Bill Bishop of grocery consultant Brick Meets Click also sees an increase in frequency. He identifies several reasons: “Some of the larger trips are being diverted to other types of outlets,” he says. “The big trip could be to stock up at a club store, supercenter or discounter like Aldi.”

Another is that heavy items are often shipped directly to the home, particularly if they are replenished automatically.

Hectic lifestyles make it harder for consumers to plan meals for a week and stock up on food. “It’s just harder to do,” Bishop says. “In addition to that, you definitely see fresh food — and particularly produce and seafood — becoming more ‘center of the plate.’ It’s a combination of the big trips going other places and an increase in people coming to buy food that they want to buy fresh, or they’re looking for ready-to-eat foods.”

The emphasis on fresher foods has driven clear preferences and related changes.

“Consumers want to get as close to nature as possible and they want it to be local,” Lempert says. “We’ve gone from having products with 20 ingredients to those that have five. Whether it’s a spaghetti sauce sold in the refrigerated case or a fresh product, the assumption by consumers is that if it’s fresh, it’s better.”

Lempert points to the growth in juices — all of which is occurring in the fresh aisle, not in the grocery aisle.

The increase in fresher foods coincides with a rise in meal kits and prepared foods. “People aren’t buying the ingredients anymore,” Bishop says. “As a consequence, it’s more difficult to justify the space and investment in the things in the grocery aisle.”

SQUEEZING OUT PROCESSED

Sterneckert says grocers have to change to meet the need for freshness. Grocers had long anticipated that 60 percent of sales would occur in the center aisles and in nonfood; he anticipates a day in which there aren’t so many options. “Why do I need 30 different types of extra virgin olive oil? Costco has the right approach. When there is an option, it’s Kirkland (the Costco store brand) and the national brand leader, and that’s it. Retailers must eliminate the duplication in their categories.”

That approach isn’t for the faint of heart: In 2010, Walmart removed hundreds of items from its lineup of national brands, pushing its Great Value line, and then quickly reversed course after irritating customers.

“Removing slow-moving items isn’t an answer,” Sterneckert says. “It might be a destination item. You have to study at a very granular level if customers are willing to switch. That is really hard without artificial intelligence and machine learning.”

Lempert sees a continued role for consumer goods, particularly those whose brands have launched innovation centers. Some of the major players have been buying startups, though that’s not always a success, he says.

While customers might want a sense of discovery when it comes to tonight’s dinner, that same romance is gone when it comes to commodities like toilet paper and laundry detergent.

The right strategy is an acquisition that brings some level of learning to the old-line consumer goods company. Lempert notes that Tyson Foods invested in Beyond Meat before selling out just before the latter went public. Weeks later, Tyson said it would launch its own plant-based protein line. “Clearly, they learned something from Beyond Meat,” Lempert says.

Navigating this new world is “a struggle right now for a lot of larger food companies,” he says. “Even the larger ones are reformulating to have fewer ingredients in their products. They’re trying. I don’t think they’ll disappear.”

But small startup food companies are rising and able to raise a lot of money via venture capital, Lempert says.

Grocers are willing to cut breaks on traditional slotting fees for startups, sometimes in exchange for exclusivity for a period of time. “Buyers see themselves as curators, creating a curated collection that’s unique from their competition,” Lempert says.

OPTIONAL EXPERIENCES

While customers might want a sense of discovery when it comes to tonight’s dinner, that same romance is gone when it comes to commodities like toilet paper and laundry detergent. Online, delivery and click-and-collect all play a role with chore shopping.

“The impact of online shopping is to sharpen the line between those products that people really need to and want to buy in store and those that they want to or are comfortable buying online,” Bishop says. “When that line is more sharply defined, you’ve got a chance to take inventory out of the store. Once you take the inventory out of the store that’s slow moving, the better it is for the standpoint of cash flow.”

Bishop sees other options — like delivery and click-and-collect — as more advantageous for consumers. “The question becomes, ‘How do you adjust your business to this new way of shopping if we don’t have people coming into the store?’ ”

That brings added challenges: Sterneckert notes the impact of out-of-stock products, particularly for customers who are picking up dinner via click-and-collect. “If I open my trunk and notice that they didn’t have one or two items, how frustrated do you think I am? I’ve got to figure out an alternative plan.”

ONES TO WATCH

Lempert notes Hy-Vee’s health market stores, Raley’s Market 5-One-5 in Northern California and Los Angeles-based Erewhon Natural Foods, as those to watch. He also cites Wegmans for its focus on the shopping experience, and Grocery Outlet, a deep discounter with a singular focus, at the opposite end of the spectrum.

H-E-B’s Central Market was an early entry, but “they just haven’t expanded the format much,” Lempert says. Kroger Co. is experimenting with a smaller store. “They’re all getting there, perhaps just in different ways.”

Frankly, he adds: “They’re out of business if they don’t. We are overstocked in this country with food stores. People have so many choices. If you’re not keeping up with the consumers and where they want to shop, you’ve become dinosaurs.”

Bishop also believes those who haven’t changed in the last five years are already in serious trouble. “They’re still building stores the same size, maintaining eight feet of cake mix and four feet of cake frosting, regardless of what’s happening with baking. That’s one group that is easy for outsiders to identify but sometimes not easy for people to ‘self-identify.’ Sadly, it’s a fairly big group. The grocery business, unlike a lot of stores, isn’t about fashion or trends, it’s about execution. Once they get into the habit of being able to get product on the shelf and put a price tag on it, doing it again is much easier than changing. That’s a problem.”

The stakes are higher in promotions, Sterneckert says. “We see a couple of problems with mass promotions: They’re easily duplicated. Competitors often promote the same items year after year. There’s a predictability so competitors can beat or match.” Moreover, about 30-40 percent of the promotions that get paid by consumer goods trade funds don’t produce incremental results.

He believes personal promotions are the answer: Grocery may be the first to truly deliver on one-on-one personalization. “Promotions have to recognize what you have bought and what you might buy,” Sterneckert says. “We see this with Amazon, recommending items that make sense and offering incentives and discounts made to influence me and specifically me.”

Grocery loyalty programs have laid the groundwork, he says. “This is taking that loyalty program to the next level, where you’re recommending items and prices specific to you, based on your propensity to change.”

Technology can drive operational efficiencies that help stores “take the costs out so they can be profitable at lower volumes,” Bishop says. “The best example today of a retailer taking costs out by applying technology is Walmart. They’re using systems now to clean their floors, scanners to monitor the conditions of shelves and in-stock positions. One way retailers are identifying the low-hanging fruit for automation is by asking, ‘What’s the routine work that we do that doesn’t add value that we can automate?’ We don’t have enough people to do that work anyway. So why not automate?”

SIZE MATTERS

All of those changes impact the traditional size of the supermarket. “I think the role is about excitement and education,” Lempert says. “It will continue and get better in this area. We’re going to see the traditional 40,000-square-foot supermarket get smaller. All those groceries that are brand names are going to be automatically replenished through our smart kitchens.”

As center-aisle staples disappear, he believes going into a store will be an educational experience where the butcher will talk about how to prepare a cut of meat and the produce manager will showcase the freshest local vegetables.

“A lot of stores used to do that, and some stores are still doing it, like a Wegmans,” Lempert says. “We’re returning to it because other grocers see you can’t win on price.” He notes that some stores are putting in dietitians. “It’s about building a relationship with someone and expanding it and being able to satisfy all the five senses with a shopper.”

Bishop believes that means a changing identity for smaller stores. “We used to think of the supermarket as a 95 percent solution. It was a store of all people. Now as we get to these smaller stores, it becomes very clear to the customer why they should go there.”

He cites Aldi for those focused on price; Sprouts serves the health market. The list could go on, with smaller niche stores.

The end result is a grocery store that is a “much more exciting place to go to shop and learn about food,” Lempert says. “We have the two generations — millennials and Generation Z — who want to know what they want to about food, and they’re demanding it from retailers.”

Sandy Smith grew up working in her family’s grocery store, where the only handheld was a price marker with labels.

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