Why NextGen food retailing requires collaboration

September 16, 2014; 00:16 am by Bill Bishop

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Retailers, manufacturers and competitors will have to work together to become more efficient – no one can reinvent the model alone.

Glen Terbeek's ideas about the future of food retailing were prescient 15 years ago, and they are still provocative today. The founder of Accenture's original Smart Store and author of Agentry Agenda: Selling Food in a Frictionless Marketplace, talks with us about how food retailing is configured today, and why manufacturers, retailers and competitors need to work together to create a new “operating system” that better fits today’s dramatically different retail market conditions. In a follow-up interview next month,Terbeek talks with us in more detail about what that barrier-busting system might look like.

You think it’s important for people to understand how we got to where we are today in retailing. Why?

I’m often surprised at how many people in the food industry don’t know why things are the way they are. Unless we understand the origins and development of the retail systems we have in place today, unless we have a clear picture of what these systems and industry practices were designed to do when they were developed, then we are blind to a crucial question:

Are the goals that current systems were set up to meet relevant today to the needs of retailers, manufacturers and, most importantly, shoppers?

The marketplace has changed dramatically, and the industry model hasn’t. The measurements we use to monitor retail performance keep us focused on what we’re already doing, and those answers don’t necessarily get us the information we need.

So where are we today?

Today’s self-service model is built around buying, distributing to and reselling to a “standard store,” with decision-making centralized to a large degree.  It made sense at the time because the self-service store was so much more efficient than the old corner store. The post WWII population was swelling, people wanted national brands, and supermarkets made them accessible.

But times have changed. Now the market is saturated with product and stores, population growth is flat, and technology has empowered shoppers to an unprecedented degree. Now shoppers can get national brands everywhere at any time, and satisfy more exotic needs with a simple logical, internet search.

Something like 150 items satisfy 70% of most families’ grocery store purchases, but the typical supermarket now stocks more than 40,000 items (up from 8,000 in 1965). The only people to whom this makes sense are retailers and manufacturers. For retailers (and shoppers), stores have become high-priced distribution centers.

For shoppers, it’s not a logical shopping experience, especially when they have so many alternatives to searching through a warehouse-size store, or traveling from store to store, to get what they need. Think about it, shoppers go to a supermarket basically to replace staples and to buy what they need for dinners. 

Fifteen years ago, you outlined a vision of the future of retailing. How close have we come to it?

We’re far from what I thought would happen. We seem to be using ecommerce mostly to extend the old model or replicate it through technology, when we should be using it to reinvent shopping.

We’re still very steeped in store-based thinking. The perfect example? Tesco’s virtual store in Korea that opened in 2011 literally hung pictures of grocery store shelves on the walls of the subway station for shoppers to order from.  Hardly a logical shopping process.

We should be stepping back and asking: If you started in today’s marketplace circumstances, what would you do?

• What does the shopper really want?
• What does the manufacturer want?
• What should the retailer really want?
• And what should the industry model look like to satisfy all three?

We’ve got to get to logical shopping, across a real and virtual shopping experience. If we don’t do this, outsiders are going to (and have already started to) define this stuff, not the industry.

I think many of the ideas in your book deserve a second look, now that retailers are a decade into trying to figure out how to serve today’s incredibly empowered shopper. Tell us a little about them.

We need to create shopping experiences that are appropiate for this day and time, and we must start by acknowledging that they are going to be across a virtual and physical shopping experience continuum.

A retailer’s physical stores should serve shoppers’ needs above and beyond distribution value. They should create value by delivering information, social stimulation, convenience and solutions. They should be lively places that people go to when they want ideas and excitement. They will be much smaller.

A retailer’s physical stores should also be hyper-local. I used to ask supermarket chain management “Who’s responsible for the market performance of each store?” and the answer was usually, “We all are – but really nobody is.” This is a problem. Every store is in a slightly different demographic and competitive marketplace, but there’s no place in the current system to take advantage of this. Mass is over.

Finally, a retailer should make a virtual offering that’s a logical extension for their shoppers. As example, think about virtual meal ideas. The virtual offering can also serve long-tail needs, yes, and as a way to deliver non differentiating staple goods.  

How to should accomplish this virtual offering is a very interesting question – and it goes to the heart of the relationship between retailers and manufacturers. Here’s some food for thought:

• Buying for resale doesn’t make sense in a virtual world. Why keep the same product stocked in multiple distribution locations? A market-level enabler makes so much more sense, making any item a CPG wants to market in the area available to any retailer.
• We’re already at the lowest common denominator on price, so why not let the manufacturer set the price virtually?
• Shoppers don’t want to visit multiple CPG sites to make their choices. Why doesn’t the retailer present the products that will interest their customers in their virtual store, and get paid a fee for creating the order? 

Let’s go back to those three questions:

What do shoppers really want? Easy, logical access to the things they need and may want, and information and solutions.

What do manufacturers want? Barrier-free access to their targeted shoppers.

What do (should) retailers want? To create truly loyal shoppers by logically connecting  the two (shoppers and manufacturers) through an up-to-date, personal shopping continuum.

The potential for economic improvement in the food industry model is large compared to the way business is being done today. Much more effective marketing AND logistics expenditures are possible, not to mention the advantages for the shoppers. But to achieve these benefits we need to change the industry model to meet the realities of today’s marketplace. Getting there may well take a joint industry effort similar to the collaboration that paved the way for industry-wide adoption of the UPC barcode – and it would probably be at least as rewarding as that effort was. Yes, competitors need to work together on this transformation for their own benefit. They can’t do it on their own.