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    What, Where and How

    Grocers must merge the best aspects of traditional and digital retailing ? and those that don?t, put their future at risk.

    By Jim Dudlicek, EnsembleIQ

    At the close of what can only be described as another fascinating year for supermarket industry observers, it?s an opportune time to take a closer look at what might shake out with the in-store experience in the next few years, which will largely be dictated by solutions and strategies guided by technology across all parts of the business.

    In this year-end special report, a trio of Progressive Grocer editors break down the retail food landscape into three main sectors:

    • ? e-Commerce/digital/mobile/data breaches: The new normal for business, impacting all retail and the shopper experience ? before, during and after the store visit, which is in turn impacting ?
    • ? Store configurations: Store formats are rapidly evolving to match the growing demand for elevated in-store experiences to leverage existing and emerging technology, which is in turn impacting ?
    • ? New products: How they?re produced, procured, presented and positioned.

    Cracking the Code

    ?There is no ?technology part? of your company ? everything is technology.?

    That statement, made by Amit Singh, president of Mountain View, Calif.-based Google Enterprise, at the Grocery Manufacturers Association (GMA) Leadership Forum this past summer, matter-of-factly lays out the reality in which grocers must operate. They must, as Singh further explains, ?succeed in creating transformation through technology, or face destruction by competitors that do.?

    Companies need to work harder to become ?digitally mature,? which means leveraging the web to build brands by engaging at scale; employing collective intelligence; working collaboratively and in real time, using data as a core element; and developing technology that?s easy to use.

    Retailers need to reinvent themselves by merging the technology embraced by the next generation of shoppers with grocers? core competencies in selecting, merchandising and preparing food.

    As noted by Joe Sheridan in his presentation at the recent food industry summit at St. Joseph?s University, in Philadelphia, digital will influence more than half of all U.S. in-store sales by 2016. Sheridan, president and COO of Keasbey, N.J.-based Wakefern Food Corp., the northeastern grocery cooperative operating under the ShopRite banner, warned that the next three years will witness a digital tipping point for the industry.

    ?If you haven?t reinvented yourself,? Sheridan cautioned, ?survival may not be achievable.?

    Best of Both Worlds

    The key will be achieving a balance between digital tools and human interaction that resonates with consumers for the long term.

    ?You can?t be a pure-play on either side,? Sheridan asserted, referring to digital versus brick-and-mortar retailers. Retailers continue to work toward ?cracking the code,? he said, and Wakefern perhaps has come closer than many at this point in the industry?s evolution: ShopRite at Home offers home delivery as well as order at home/pickup at the store, stressing the human connection by offering personal shopping assistance on digital orders.

    Even Millennials, the embracers of all things digital, are indicating they?d go to the grocery store more often if provided a hands-on shopping experience with consultants or experts, according to research from Cincinnati-based LoyaltyOne.

    Responding to the September 2014 study, 84 percent of Millennials (age 18?29) said that being able to redeem rewards/loyalty program points for a session or consultation with a chef or nutritionist would motivate them to shop more with that grocer.

    ?Marketing to Millennials successfully will depend on how well retailers meet their unique needs,? says Fred Thompson, LoyaltyOne retail practice leader. ?Offering sessions with a consultant or expert in the field helps to develop a meaningful relationship between the retailer and shopper, which leads to increased engagement, loyalty and, ultimately, profitability.?

    Still, traditional methods linger. According to The Retail Feedback Group?s July 2014 online survey, coupons delivered via print remain a popular go-to when it comes to saving money on groceries.

    Half of the 1,200 adult shoppers surveyed who said they visited a conventional supermarket within the past 30 days read printed circulars at home to find deals for their last store visit, nearly a third clipped paper coupons from newspapers or other print sources, and a quarter used a printed in-store circular.

    Offers through digital channels still have a way to go to catch on with core supermarket shoppers; the survey found that about one in five respondents used a digital circular or downloaded digital coupons during their last grocery trip, and only a few conducted research on smartphones or used social media promotions to save money.

    But those all-important Millennials continue to rise in purchasing power; further research indicates that internet users age 45 and younger are more likely to partake in digital grocery shopping activities than older adults.

    e-Tail Details

    Wakefern and other retailers are researching other ways to meld technology with grocers? selling know-how: 360-degree portal scanners to speed the checkout process; self-scanners that allow shoppers to bypass checkstands altogether; and beacons to track shoppers, allowing grocers to offer targeted, personalized deals at shelf, are just some of the items they?re looking into.

    Online grocery sales are still considered at an introductory stage in the United States, while they?re at a growth stage in places like the United Kingdom, France and the Netherlands, with maturity and saturation still far ahead on the continuum here and abroad.

    Key drivers of grocery e-commerce are freshness, quality, convenience, urbanization and connectivity. According to research presented at the last GMA Leadership Forum, 70 percent of U.S. consumers are willing to try buying groceries online, while a third of shoppers are willing to pay for same-day delivery.

    Consumers are spending more time with digital than traditional media, so companies need to deliver experiences that translate to digital content ? that was the crux of the issue as discussed at the GMA forum by Lisa Hammitt, VP of marketing for San Francisco-based Salesforce.com, and Karen Sauder, Google?s national industry director for food, beverage and restaurant.

    Retailers and CPGs must understand consumers? purchasing criteria, leverage digital for cultural relevancy and turn data into insights. Products are now social, not just functional and emotional; 90 percent would recommend a retailer after a good experience, and digital makes doing that easy and immediate. A joint e-commerce initiative commissioned by Google, IRI and Boston Consulting Group revealed that shoppers regularly switch between digital and physical channels, and CPG companies will need to serve multiple retail models as e-commerce continues to evolve. Of particular note: 5 percent of e-commerce penetration will be 50 percent of all CPG growth over the next five years.

    Success, the study asserted, can come through developing an integrated strategy, building an adaptive organization, building brand equity online, revising category management across all channels, resisting old capabilities, and developing joint plans between CPGs and retailers.

    The field continues to grow, with players such as Peapod, Instacart, FreshDirect and Amazon Fresh now being joined by Salt Lake City-based Overstock.com, which last month announced the launch of its Farmers Market to offer customers access to home delivery of seasonal, healthy food, grown and produced locally.

    ?We?re integrating small farms, community-supported agriculture and co-ops into our technology so as to allow consumers in their area to buy and arrange delivery through Overstock,? says CEO Patrick M. Byrne. ?We want to streamline the farm-to-table process to provide everyone access to healthy food, delivered to their doorstep.?

    According to Byrne, Overstock is currently able to serve about 20 percent of the U.S. population with farm-fresh food grown near their ZIP code, and intends to provide delivery access to fresh, locally grown food for 70 percent of the U.S. population by the end of 2014.

    So what do these purely digital retailers mean to traditional grocers?

    ?They?re here ? we have to play with them,? Wakefern?s Sheridan acknowledged, noting that traditional grocers do have advantages, among them trained associates that humanize the shopping experience. ?How can Amazon make an emotional connection with the consumer?? he said. ?Food retail is the last ?local,? and there?s always going to be an emotional connection with that.?

    The Perils of Progress

    But even in the brick-and-mortar world, technology has its flaws. Part of the new normal in retailing is dealing with hackers bent on stealing customers? private information, and grocers are in no way immune to this threat.

    Supervalu Inc. and New Albertsons were twice the victims of related data breaches this past year. St. Louis-based Schnucks Markets Inc. recently settled a class action stemming from a breach in 2013, when malicious computer code targeted data in the magnetic stripe of credit and debit cards swiped at 79 of its stores. And the much-publicized data breach that affected millions of Target shoppers more than a year ago eventually resulted in upheaval at the highest levels of the Minneapolis-based discount retailer?s executive suite.

    These will certainly not be the last retailers to be so impacted, according to Tom Field, VP of editorial for Information Security Media Group, a Princeton, N.J.-based global media company.

    ?The big cost is not what it costs to mitigate the breach. It?s a reputational hit,? Field tells Progressive Grocer. ?You?re going to have people getting [credit and debit] cards replaced for the second or third time, wondering if it?s safe to shop there.?

    Field expects consumers to be at the point of thinking ?enough is enough? when it comes to data security at retailers. ?Every day, there?s something new,? he says. ?I don?t want to say consumers have to get used to it, but that?s where we?re at right now with magnetic stripe cards.?

    Embedded chip technology, widely used abroad, is more secure, but U.S. businesses have been slow to convert, due to infrastructure expenses. Credit card companies are moving toward the new technology, but ?the issue is the merchants? switching their technology from magnetic stripe to chip,? explains Field. ?That?s going to be the new obstacle. But I think each breach pushes them further towards making that investment.?
    ?Jim Dudlicek

    Formatted Future

    After a decades-long Quixotic quest charted by some of the biggest brains in the business ? belonging to the likes of real estate teams, consultants, market researchers and universities, among others ? the grocery store of the future is decidedly here, manifest in a plethora of shapes, sizes and storefronts, both physical and virtual.

    Indeed, the most productive supermarket organizations are prioritizing capital expenditures to spur growth, with an emphasis on future-focused store configurations to best serve the multifaceted needs of today?s multigenerational and multicultural shoppers. With consumer behavior, spending and demographic profiles changing rapidly, retail leaders are increasingly adopting omni-channel approaches to engage consumers, using all of the platforms at their disposal, including brick-and-mortar, online and mobile.

    With e-commerce and digital strategies serving as the dominant themes in food retailing these days, the industry?s ferocious cycle of unparalleled disruption and change continues to intensify.

    Strategies for the Multichannel Shopper

    In a world where the lines between online, mobile and in-store shopping continue to blur, Ralph Crabtree, CTO and co-founder of Norcross, Ga.-based Brickstream, an in-store analytics market leader, affirms, ?Consumers have become accustomed to having a diverse array of purchasing choices at their disposal, whether at the register or with the click of a mouse or tap of a touchscreen.?

    Accordingly, the following two overarching questions are currently in play: How is the evolution of technology impacting grocery shopping today, and how will it impact the grocery store of the future?

    ?To be sure, the traditional grocery store remains a top channel for brick-and-mortar shopping,? says Crabtree, citing Forrester research reported by CNBC in June of this year that found grocery accounting for just 2.2 percent of online sales. ?Unlike categories such as electronics or books, there are important sensory aspects to grocery shopping that are difficult to replicate online. People often prefer to check the ripeness of their produce before they buy, or take a look at what?s available at the prepared foods counter when they want to pick up something fast for dinner.?

    But as smartphones become ever more pervasive ?and consumers ever more technically savvy, grocery chains that fail to adapt their in-store strategies to the multichannel shopper will put themselves at a disadvantage,? warns Crabtree, who recently authored an exclusive PG online guest column on the role that in-store analytics will play in powering next-generation grocery stores. ?The day is coming when ?smart refrigerators? might place orders that consumers pick up on the way home from work, or when shoppers will want to check register wait times before they stop at the store.?

    As such, retailers seeking to increase their odds of competing in the Darwinian low-margin/high-stakes grocery slugfest are plotting heavily to adapt to a new world order revolving around the Internet of Things (IoT) ? which refers to a near future in which everything, from clothing to appliances to groceries, is interconnected and tech-enabled to send data back and forth (i.e., recipes sent from a grocer via smartphone based on what items are being dropped in carts) ? with more sophisticated, solutions-based concept stores.

    Walmart Strives for ?Endless Aisle?

    And so it goes with the planet?s largest retailer, Bentonville, Ark.-based Wal-Mart Stores Inc., which over the past 25 years has leveraged its dominance of the large-format supercenter model, and now conversely projects to spend about $1.2 billion to $1.5 billion on e-commerce and digital initiatives as part of its $12 billion 2016 cap-ex fiscal budget.

    ?Our business and customers continue to evolve, and so will the way we deploy capital,? Charles Holley, Walmart?s EVP and CFO, told investors at its annual meeting earlier this fall. ?We will invest more heavily in e-commerce initiatives, while temporarily moderating our global physical growth, particularly larger stores. We are focused on creating an endless aisle and appealing to our customers? changing needs.?

    Targeted Learnings

    For its part, the nation?s second-leading mass retailer, Target Corp., is poised to open its sixth TargetExpress store in the South Park area of San Diego in July 2015. At approximately 19,000 square feet, the compact store will be about 14 percent of the size of the retailer?s typical 135,000-square-footer.

    ?This is an exciting opportunity to test and learn as we continue exploring new ways to meet our guests? needs and exceed their expectations,? says John Griffith, EVP of property development for the Minneapolis-based national chain. To that end, Griffith says the TargetExpress experience ?will be grounded in this research as well as learnings from the company?s CityTarget stores,? such as checkout lanes configured to cater to high traffic and smaller basket size.

    Target currently operates one TargetExpress store in its hometown, and the San Diego location is the fifth store to be slated for a 2015 opening.

    Debunking Conventional Wisdom

    When asked to handicap what he considers to the top store-configuration hot buttons in both the short and near terms, Robert Gorland, VP for Harrisburg, Pa.-based retail real estate specialists Matthew P. Casey & Associates Inc., says, ?The majority of new conventional stores can be smaller without a gaping reduction in either quantity or quality of perishables departments.? However, he notes, ?Many operators continue to feel that ?a one-size-fits-all larger prototype is necessary? to maintain a strong perishable perception.

    To the contrary, Gorland says that many would be wise to follow the lead of Whole Foods Market, Publix, Hannaford, Food Lion and, yes, Walmart, all of which he says are enjoying ?a certain comfort level operating many stores in the 40,000-total-square-foot range, especially for fill-in locations in less densely populated locations. Many new great sites are becoming harder to find,? Gorland continues, and leases, let alone break-evens, are growing increasingly costly.

    ?Since very often, only smaller parcels are available and many vacant, small- to midsize boxes are becoming available,? says Gorland, ?many retailers need to consider opening smaller prototypes that can make money,? albeit at a lower sales threshold. ?In fact, in many under-stored rural areas, there may be enough sales available to open a smaller, profitable, more space-efficient prototype, versus a higher-risk larger store with excessive grocery and beverage space, excessive checkouts, wider aisles? and, of course, higher break-evens. ?Bigger is not always better,? he affirms, ?and many smaller supermarkets are more profitable than their larger units,? as a result of more careful product curation, tailored merchandising and more focused customer service.

    Companion benefits of smaller floor plans are also realized through enhanced operational efficiencies with receiving and inventory management. ?With more intelligent, demand-based ordering,? explains Gorland, ?retailers can reduce back-room storage and cooler space. For instance, ? a total 55,000-square-foot store with a more space-efficient 42,000-square-foot selling space can produce the same sales ? and a higher profit ? versus a total 65,000-square-foot store with 46,000 selling square feet.?

    The bottom line, according to Gorland: ?Today?s retailers need to think more about achieving higher sales per square feet, and worry less about market share.?

    High Tech + High Touch = Bull?s Eye

    As he noted in the August 2014 PG Store Design Contest issue, Bill Bishop, chief architect of Barrington, Ill.-based omni-channel consultancy Brick Meets Click, says the successful next-generation store will offer ?a mix of high tech and high touch needed to attract all the spending from a geographic trade area,? while keeping true to its distinctive local roots.

    Behind this development, Bishop says, is ?the emerging appreciation among food retailers to find ways to profitably drive sales to their stores and simultaneously connect with customers before, during and after their shopping experience ? including when they?re shopping online.?

    Accordingly, successful new stores are on a slow but steady path to solve a more complicated set of challenges by:

    • ? Tailoring the assortment and pricing to customers in specific trade areas.
    • ? Offering services, i.e., online shopping with and without delivery, to satisfy the needs of a broad range of shopping occasions.
    • ? Developing new store formats and store networks made up of a range of different platforms to best serve customers in each trade area, as well as in the larger metro markets, which is where Bishop believes the real creativity will occur.
      ?Meg Major

    New and Improved

    What products will capture grocery shoppers? imaginations ? and dollars ? in 2015 and beyond? To hear Chicago-based market researcher Information Resources Inc. (IRI) tell it, many of the same types of items that currently claim their attention.

    Susan Viamari, IRI?s editor of thought leadership, indicates four major currents in edible product innovation, starting with home-based/do-it-myself indulgence. ?Consumers have become adept at finding less expensive ways to treat themselves, and they will hold onto these skills even as the economy continues its slow upward march,? she notes, so items that enable shoppers to pamper themselves at little cost ? a bottle of store-brand wine and a pint of gourmet gelato, say ? will continue to resonate with shoppers.

    Next up is flavor/texture excitement. According to Viamari, ?Consumers ? are looking for new flavors/textures that bring them experiences of the world. Marketers are investing to explore new ingredients/combinations that bring excitement and experiences to everyday eating experiences.? By that standard, the recent mania for sriracha-flavored everything wasn?t just a fluke.

    Also on the list are healthier-for-you items. ?a large majority of consumers are working to eat healthier by consuming more of the ?more desirable? ingredients (e.g., fiber, fruits/veggies, protein) and less of the ?less desirable? ingredients (e.g., fat, calories, trans fats),? explains Viamari. ?New ingredients and new technologies are allowing manufacturers to bring new benefits (e.g., beverages with more protein, veggie-infused beverages, cereal with more whole grains) without sacrificing flavor/texture/experience.? That means we can expect more better-for-you item introductions seeking to duplicate the recent breakout success of kale chips.

    Finally, portable eating solutions and satiation continue to be high priorities for shoppers.? Consumers will continue to look for new ways to fuel up without slowing down,? affirms Viamari. ?Innovation that makes it easier to be fuller for longer will continue to do well in the coming years.? Expect packaging to keep pace with consumer demands for portability, while more protein- and fiber-rich offerings could serve to stave off hunger.

    Nonfoods Influences

    Some of the trends influencing nonfoods product development are similar to those behind edible items, including a home-based living/do-it-myself movement, and a desire for products deemed better for people and the environment.

    An additional trend shaping future nonfood offerings is the consumer desire for powerful results. ?Whether it?s a salon-quality treatment in the home for less, or making the home cleaner with minimal effort, consumers are looking to save time and effort with products that bring the power into their own hands,? asserts Viamari.

    Spanning all store categories, however, is an ongoing preoccupation with price. ?Value will remain a key concern for consumers ? they will be looking for solutions that meet their needs and wants at a price point that is deemed affordable,? she says. ? To deliver value, look for new packages/pack sizes ? perhaps packages/pack sizes that vary across channels/banners ? as manufacturers/retailers work to really dial in on consumer needs/wants at a granular level.?

    Breakfast and Beauty

    When asked which categories were likely to see the largest influx of products and why, Viamari replies: ?Breakfast-related innovation has really escalated, and it will continue to be strong in the coming years. ?The most important meal of the day? is essential to healthier eating habits that consumers are looking to adopt.?

    Over in nonfoods, ?beauty innovation is strong, spurred on by healthier beauty,? she notes. ?New ingredients and technologies will continue to enable growth of this segment in the coming years, and consumers will continue to invest in these products as a means of looking and feeling good for less.?

    Attention Getters

    ?Brands that provide powerful results and exciting experiences are sure to capture attention and share of spending,? concludes Viamari. ?Wellness-related products will continue to capture increased share of spending, and wellness will continue to be broadly defined. Products that provide powerful and long-lasting results will also do well in the coming year, as consumers look to maximize value. Experiential living will also capture attention, since [such products] allow consumers to indulge without breaking the budget.?
    ?Bridget Goldschmidt

    ?If you haven?t reinvented yourself, survival may not be achievable.?
    ?Joe Sheridan, Wakefern Food Corp.

    ?How can Amazon make an emotional connection with the consumer? Food retail is the last ?local,? and there?s always going to be an emotional connection with that.?
    ?Joe Sheridan, Wakefern Food Corp.

    ?Many retailers need to consider opening smaller prototypes that can make money, albeit at a lower sales threshold.?
    ?Robert Gorland, Matthew P. Casey & Associates

    ?Today?s retailers need to think more about achieving higher sales per square feet, and worry less about market share.?
    ?Robert Gorland, Matthew P. Casey & Associates

    ?Brands that provide powerful results and exciting experiences are sure to capture attention and share of spending.?
    ?Susan Viamari, Information Resources Inc.

    By Jim Dudlicek, EnsembleIQ
    • About Jim Dudlicek As editor-in-chief of Progressive Grocer, Jim Dudlicek oversees daily operations of the magazine, spearheads its signature features, produces PG’s monthly Trend Alert newsletter on center store issues, moderates its regular webcast series, and writes and comments about a wide range of grocery issues. A food industry journalist since 2002, Jim came to PG in June 2010 after covering the dairy industry for 7½ years, during which time he served as chief editor of Dairy Field and Dairy Foods magazines. A graduate of Marquette University, Jim is fascinated by how truly progressive grocers inspire consumers to enjoy food, transforming the industry from mere merchants into educators that can take the most basic of all necessities and turn it into something profound and life-enhancing.

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