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As deep-pocketed online players, big box retailers, and convenience and drug stores ramp up their efforts to steal share of wallet from grocery stores, the most successful grocers will be those that can anticipate impending changes and capitalize on the opportunities they create. Here are five trends to watch over the coming year:
Promotions Turn Personal: The days of coupon clipping in the Sunday paper may be numbered. For years, grocers have been reducing FSI circulation, and the smartest retailers have done so with a scalpel rather than a hatchet – testing which markets will profitably respond to transitioning some of their print circular distribution to digital. As more grocers further enrich their wealth of customer data – and as consumers make digital an even bigger part of their lives – the race to offer the most relevant promotions for each customer will continue to intensify.
In 2015, we can expect to see more programs like Safeway’s “just for U,” which offers personalized coupons to its customers. As grocers look to further increase share of wallet, they may also turn to in-store technologies, such as indoor positioning systems, to push customized offers in real-time. A handful of retailers are already piloting “beacon” technologies that enable them to blast promotions to customers’ smartphones as they stroll through the aisles.
Determining which offers to send to which customers at what time is challenging, as grocers need to avoid giving away money to customers who would have purchased promoted items at full price. Grocers can leverage transaction- and customer-level data to ensure they are designing promotions that are not likely to result in giving away too much money to customers who would have purchased that combination of products anyway (e.g., if a customer commonly buys two boxes of cereal, don’t promote a buy-one-cereal-get-another-free; instead, offer a discount on the third box). To further evaluate and refine their targeted promotions, grocers should test different offers to understand which discounts truly generate larger baskets and incremental trips.
Groceraunts and Wine Tastings Hope to Drive Traffic: From introducing beer cafés to offering cooking classes, grocers are increasingly challenging the notion that customers should only visit their stores to grab weekly staples. Some grocers are even organizing social activities, such as wine tastings. Others have introduced “groceraunts” - in-store eateries, cafés and gourmet delis - in direct competition with restaurants. As more grocers pursue similar projects to turn their stores into destination spots, the lines between convenience stores, drug stores, restaurants and grocery stores are likely to continue to blur.
All transformative additions bear risk of not quickly paying back, or even destroying value. For example, adding an in-store restaurant not only costs significant capital and potentially causes a sales disruption, but it also requires taking away floor space from another category, re-allocating or adding labor, and optimizing the offering within that restaurant. Grocers should test these initiatives on a small scale first to understand the true incremental impact, taking into account potential gains and losses to other categories, and measure whether nearby stores are cannibalized before committing to broader rollout.