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With 2015 quickly coming to a close, it’s important to keep a finger on the pulse of American food retailing and the mediums consumers are using in order to accurately predict what changes will be coming to the industry in the next year.
Nearly half of all web users look to social media when making a purchase. Grocers can no longer expect to thrive (or even survive) without shifting their strategies to reflect how consumers are influenced by social and online media. Ronald Lunde, a veteran grocery and advertising executive with companies like Leo Burnett, Price Chopper and Supervalu, recently shared his thoughts with me to discuss what’s on the horizon for 2016.
Q: What are the biggest changes affecting grocery business today?
Ronald Lunde: Firstly, the economy has been in a prolonged recession. A record 93 million workers are unemployed. Wages have not risen. The ‘middle’ class is now below 43 percent of the population, down from its high of 53 percent.
Secondly, technology, is now at a 103 percent + penetration rate of the population. Americans are now spending 23 hours per week online and texting.
Thirdly, demographics are influencing change and creating new rules. For the first time in history, five generations will be in the workforce at the same time. The foreign born percent of the U.S. population will reach its highest point ever within the next eight years.
For an example on the impact of change, look at the Generational Break-Out chart below from Prosper Insights & Analytics. This data from August 2015 shows, as a percent, what generations belong to what retail format. Look how generations skew toward various retail formats.
If you were the CEO of one of these retailers, what would you do to communicate with, attract and hold the emerging and future generations of shoppers?
What are your strategies and tactics? What media, messaging, merchandise, price points and store formats? How would you create relevant stories, and reliable content about your retail format? How do you communicate transparency and trust? How do you create receptivity?
What used to work, may no longer work in a hyper-connected data driven marketplace … and that’s the challenge. New rules require new tools!
Think of tools that directly reach and resonate with the modern consumer like social media, blogs and mobile apps. Consumers want targeted messaging and content that makes their shopping experiences easier, quicker, and cheaper. Rather than thinking you know what modern consumers want, go directly to the masses through social influencers. They are everyday shoppers that know exactly the kind of information and inspiration their online followings are looking for to inform a purchase.
Q: How will newer developments like grocery delivery affect brick-and-mortar stores in 2016? How must they adapt?
Lunde: “Retailing used to rest on the strategy of selling customers what buyers bought. Now, a more demanding customer is forcing retailers to sell what customers want to buy. Yet, prices must be kept low. Convenience is another customer demand. In the 1950s, Americans defined convenience as a place to shop within their town or neighborhood—a physical store. Today our notion of convenience is shifting to not leaving our houses – home delivery. Thank you, Jeff Bezos!
What we are seeing is a pattern that profoundly reflects the increasing obsolescence of traditional business models as consumer needs, priorities, and technology change unfolds.
Q: How is grocery retailing responding to the changing customer?
Lunde: There appears to be no general consensus or no single right strategy. So here is what trends selected retailers are betting shoppers will want over the next 5 years:
- Kroger, as the nation’s most data insight-driven retailer, will continue to use its massive transaction database to target and reward customers.
- Walmart, the nation’s largest retailer, will continue its expansion of the smaller-footprint Neighborhood Markets as it moves away from superstore construction.
- Target is reconfiguring its merchandise offering, both traditional merchandise and food, toward Millennials. Look for an increased offering of ‘better for you foods’ and a wider variety and upgraded quality of produce.
- Shop Rite has sushi chefs in most stores. There are also registered dietitians and in-store health clinics in certain locations.
- Giant has hired in-store nutritionists and has invested heavily in upgrading its produce and prepared-food sections.
- Drug stores like Walgreens and CVS now carry an edited selection of packaged and frozen foods as well as dairy, other refrigerated and produce items for the convenience of urban shoppers.
- Aldi is switching to "better-for-you alternatives," including nearly 70 varieties of fresh produce; its exclusive Fit & Active brand of products with less fat and sodium; a SimplyNature product line that includes several organic items; and a live Gfree line of gluten-free products.
- Independent and small chain retailers will evolve to serve growing immigrant community cultures.
- Costco recently announced that it is adding increased floor space and backroom refrigeration to its stores for an enhanced produce presentation.
- Time specific home delivery and brick and click services will continue to grow.
Food retailing used to view the customer as part of a mass market. Today’s customer no longer is willing to conform to the restrictions a mass market imposes. Retailing, particularly food retailing, will have to learn to adjust to customer segmentation and change.