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Year after year, grocers face unpredictable factors that influence business performance. 2015 was no different, with a flurry of M&A activity, traditional grocers serving up gourmet foodservice, and more grocers testing the waters of delivery services. In 2016, we expect the rate of change to accelerate. Here are the top trends to watch in the coming year:
1. Spotlight on specialty departments: As big box retailers, convenience and drug stores continue to encroach on grocery's share of wallet, we expect to see traditional grocers invest more in specialty departments to differentiate themselves. Coborn’s took the plunge with its gluten-free bakery and has been inundated with orders. Similarly, Food Lion accredited recent profit gains to investments in its bakery, dairy and deli departments. Other grocers are staffing their meat and seafood departments with skilled butchers and fishmongers, or hiring dieticians to consult customers perusing the shelves.
While these specialty departments and services can successfully draw in customers, they are often very expensive. For example, those with new positions on their payroll are likely paying a premium for specialized skills. As such, grocers need to implement these initiatives in a subset of locations to evaluate and tailor strategies before investing in broader rollout. For example, a small-scale bakery test could reveal which products sell like hotcakes, where there are opportunities to limit specialized labor to peak hours, and more.
2. Clipping unprofitable promotions: With consumers thirsting for discounts, grocers have gone highly promotional in recent years. However, as more convenient offerings thicken competition, grocers are feeling the pressure to get their promotional strategies right. In 2016, we expect to see grocers get smarter with their promotions by putting their Big Data to work.
For years now, grocers have been collecting vast amounts of data as storage costs decrease and data capture technology becomes readily available. Yet, due to time and resource constraints, many can’t leverage these valuable assets to inform their promotional strategies. As a result, they often fall back on a variation of last year’s strategy, which can leave a lot of money on the table. Successful grocers are finding that investing in tools to turn these massive data sets into actionable insights enables them to quickly and accurately understand which items should be promoted to move the needle on profits.
3. Online players deliver new flavors of competition: Industry gurus have been talking about online grocery services since Peapod’s inception in 1996, so the topic is not necessarily a new one. However, it’s a trend that continues to expand. Established online players like Instacart are expanding into new markets, and traditional grocers like Kroger are testing online ordering programs. There has also been a proliferation of meal kit delivery services like Blue Apron and partnerships between tech start-ups and grocers. A recent case that made headlines was Prince Valley Market in Detroit joining forces with Uber to give free rides home to customers spending $50 or more.
Before investing big bucks to compete online, traditional grocers need to answer a number of questions, including:
- What is the true impact of introducing these programs?
- How can we design our program to maximize profitability (delivery fees, add-on suggestions, etc.)?
- What types of customers do these services attract?
Given the rapid rate of change in this space, intuition and industry analysis can only tell decision-makers so much. To accurately answer these nuanced questions, grocers must try each idea on a small scale and analyze the performance in real time using rigorous methods that provide an accurate read, despite the small number of test stores. These pilot programs will also help grocers identify unforeseeable issues with implementation and address them before broad rollout.