The Food Retail Future: New Channels, New Choices

Mike Fordney  June 24, 2015 Retail & Wholesale Distribution, Food 

There’s plenty of change on tap for the food retail industry. I recently spoke with a few of the top industry executives about the topics that are having an impact on the world of food, including shifting consumer preferences and the emergence of omnichannel retail strategies.

Keeping Up With the Consumer
Staying on top of changes in consumer behavior should be job one for food executives. The expected continued growth in private label in supplanting national brands represents just one change in consumer preferences.
 

Judy Spires, President and CEO of Kings Food Markets and Balducci’s, highlights the need to build “trust in the brand.” She notes that as Kings Food moves private label into new products, those items quickly move to the top of the category.

The smart grocers have expanded their private label offerings to attract price-sensitive millennials, plus they enjoy the better margins that private label provides. “Private label is no longer about lower quality,” says Jim Hertel, Managing Partner at Willard Bishop Consulting. “Today’s shopper is very savvy and knows that high quality doesn’t necessarily mean higher priced.”

Millennials Lead the Way
One way grocers can predict what will be successful is by paying attention to millennial shoppers. Andrew Nodes, Business Development Lead of Instacart, says that trends first adopted by millennials quickly gain traction among Gen Xers and baby boomers.
 

Millennials are driving the bus in natural, organic and other health-conscious grocery items. As an example, Spires notes the surge in coconut water sales across all age groups after the product appeared on the cover of Men’sHealth magazine.

Millennials probably won’t “squeeze the Charmin,” but they will come to the store to squeeze the mangos.

An Omnichannel World
To serve new consumer preferences, it’s clear is today’s grocers must have an online strategy, be it teaming up with an online delivery company like Instacart or going it alone with a “click-and-collect” system of their own. Brick-and-mortar stores aren’t going anywhere given online grocery’s small penetration at this point. But as Spires, points out: “If you don’t have an e-commerce strategy, then you have your head in the sand.” 

Along with meeting consumer demand, maintaining an online channel also offers grocers the opportunity to improve margins. Average basket sizes online are well over $150, which is far greater than the sub-$30 average order in brick-and-mortar grocery stores. Scott DeGraeve, Peapod’s Senior Vice President of Business Development, says the company aligns its regular prices with those of its retail affiliates (Stop & Shop and Giant), and while the majority of the promotions are matched, there are times when there are slight differences online.

The unanswered question is whether some grocers can continue to avoid an e-commerce strategy. Perhaps that’s true in isolated markets where competition doesn’t provide an option. But the world is getting smaller, and Amazon and Wal-Mart have a long reach. So partnering with an online service provider may be the best option for many grocers.

At the end of the day, brick-and-mortar retail won’t disappear. Some consumers will go virtual and may never see the inside of a store again, but they will be the minority. Tomorrow’s grocer will continue to offer the in-store experience while providing the convenience of online ordering. The key is to develop a customer experience that will meet the needs of today’s shoppers.