The Future Of Grocery Shopping


Ten years ago, if you had a shop selling books, airline tickets, music and video and consumer electronics, you probably weren’t too bothered by e-commerce. Sales on the internet were a marginal thing; there was little evidence to suggest the mass market was going online. Today if you still own a shop in these areas you are either highly specialized or going out of business. Nobody can argue that, in these categories, online shopping has not radically changed the retail landscape. Today this is far from being true in grocery retail. So should CPG marketers worry that the future of grocery shopping might be radically different to what we have become accustomed to today?

 Is this the future of grocery shopping?

Today online grocery retail is marginal

Not a lot of people buy food and packaged groceries online today. Estimates suggest that in the US ‘non-traditional’ channels account for between 3 and 5%, in Australia maybe 5% and in most of Asia, less that 3%. So today internet sales are still a marginal thing – like they were 10 years ago for book retailers.

Whether you believe that grocery retail will stay offline or not, an un-arguable fact is that the likes of Walmart and Tesco are working hard to figure out how to create a great online offer and create a more enticing in-store offer. But despite all their efforts, progress has been slow.

Imagine my surprise then to find a great example of where I think grocery retail is going in Kuala Lumpur, Malaysia. My colleagues in KL recently took me to Ben’s Independent Grocer (BIG) in the Publika shopping mall.

BIG – A picture of the future

BIG is not so much a grocery store as a foodie’s theme park. The store presents an interesting case of what is likely to become the norm in leading stores globally. Here are four things I believe we are likely to see happening:

Focus on fresh 

Focus on freshWhat BIG does really well is to draw shoppers into large and diverse fresh offer with great merchandising, lighting and signage. Fresh food will become more important in the future because the physical experience of handling choosing and learning about fresh product is difficult to duplicate online. A strong fresh offer will give shoppers a reason for visiting real stores.

Focus on specialties

Focus on specialtiesAt BIG you can get things that aren’t generally available in the mass market or that aren’t necessarily practical to buy online – like organic baby products. Sure some concerned and very organized mums will take the time and effort to seek out these products. But most mum’s live in the real-world where they have to the juggle the needs of a family, a work life and a social life – stores that can bring the latest specialty products to these shoppers win kudos and make a trip all the more worthwhile.

Focus on giving more

Focus On Giving moreAt BIG you can buy a great range of booze – but here the added value is in the experience of buying – not just the act of doing so. Nothing that’s on offer in Ben’s could not be bought online in the future, but there’s something about a carefully curated range, set in a different and comfortable environment with a specialist on hand to advise, that makes visiting this liquor store just a little bit more fun than browsing online.

Packaged groceries are for service

Packaged Goods Are A ServiceThere’s plenty of CPG product available at BIG and much is pretty well done but it’s for service only – not the prime purpose of the store. BIG is trading on the experience you get from buying fresh food and specialties, not trying to differentiate itself on a range of packaged groceries that can be bought just as easily elsewhere.

Is this the future of grocery shopping?

There’s no way of telling whether BIG will be a successful retailer in the long-term, certainly it’s long on high-priced stock and short on deep-pocketed shoppers. BUT there’s a lot to be learnt here about where multi-channel grocery retailing could end up.

The biggest implication for me of this is the role that real stores might play for the CPG industry. If CPG products become more marginalized in the store, brands will have to fight harder to make an impact both off-line and online. This is going to take some deeper thinking about the role that physical stores should play and the relationships brands need to create with shoppers and retail customers in the future. This is not a ‘sales problem’ – it’s a total marketing problem that requires marketers and sales people to work together to come up with new ways of engaging with consumers, shopper and retailers.

Here are some practical steps to take now:

  1. Research the roles physical stores currently play and the propensity of your shoppers to use online channels
  2. Learn more about those shoppers who already buy products online via CRM or digital analytics platforms.
  3. Learn more about what draws shoppers back to stores regularly.

If you’ve already taken these steps and can share what’s been learnt or if you’ve found other great examples of really engaging grocery environments – please do post them here!

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Reducing Trade Expenditure – Think ‘Consumer First’ Not ‘Store First’

In 1995 POPAI told the world that 70% of purchase decisions were made in-store and in May this year they announced their latest research showing that this number had climbed to 76%. Manufacturers around the world have seized on these figures to justify progressively higher levels of expenditure in retail.

Today, “trade spend’ is one of the highest single costs borne by consumer goods businesses after the cost of goods. A recent report by AMG Strategic Advisors, shows that American Consumer Goods companies now spend 13.7% of gross sales on ‘trade funds’. The same report suggested that 77% of these companies plan to increase trade promotions funding in the coming years.

For many manufacturers, trade spend has become a cost of doing business. As major retailers continue to grow (the top ten have more than doubled in size since 2000), teams can expect these costs to escalate further. The problem with this is that much of this money delivers a negative ROI. We’ve found that returns are on average 30 cents on the dollar, which means we conservatively estimate that the top 250 consumer goods manufacturers lose nearly US$200bn per annum through ineffective trade spend.

Most manufacturers would like to see reduced trade costs and better returns on their investment but many struggle to figure out how they might do this. In my experience the first major step to take is to change the attitude your company has to retail investment.

Many manufacturers have been influenced by Proctor and Gamble’s “store back” approach. P&G created this approach to ensure they understood everything there was to know about “the first moment of truth” – the point when a shopper buys the product. P&G seek to understand what triggers purchase in-store and work back to consumer stimuli to ensure each trigger “fires” at the right time. The problem however is that many disciples misinterpret ‘store back’ as ‘store first’.

‘Store first’ thinking puts the power into the hands of big retailers by focusing investment on the biggest customers in order to drive sales. Retailers use this power to encourage greater volumes of investment from their vendors, thereby driving the escalation of trade spend.

I believe this is a damaging and costly approach so my teams and I suggest a different way of thinking – ‘consumer first’. A ‘consumer first’ approach focusses on the key consumption priorities and then seeks to identify target shoppers whose purchase behavior can deliver that consumption. This allows you to prioritize channels based on their ability to deliver the right shopping patterns (not just based on size) and to define the right activity plans in-store before writing a cheque to a retailer. You might think of this approach as almost being ‘store last’.

For some this might seem like a lot of extra work, but think about it, if you are spending 13.7% of sales in-store and 70% of this is wasted, a ‘consumer first’ approach could increase profitability by nearly 10 margin points. The average consumer goods business makes only 8.5% profit so this approach could double the profitability of some businesses.

We know this approach works, we’ve seen teams who insisted it was ‘impossible’ to reduce trade spend saving millions of dollars by taking the ‘consumer first’ approach – isn’t it time you do too?

 

Feature image from Flickr

How to build an online retail offer – a guide for CPG teams

I’ve blogged a few times about the increasingly urgent need to develop an online retail offer but I’ve yet to give clear guidance as to what CPG manufacturers should be doing. Let me be clear in this, I have no doubt that leading manufacturers are already thinking hard about this but my perception is that most of this thinking is being done in global and regional offices far from the action. So here is my view of what should be done to address the opportunities and threats that the inevitable growth of online sales present

1. Get serious about this now – I’ve said this before but the potential for online sales to rise dramatically and exponentially exists globally – in both developed and emerging markets. There is a potential for online to take between 15% and 20% of sales of sales in the medium-term (IGD Report). If you wait for this to happen there are some nasty surprises in store. As retailers lose the advantage of location, and as sales slip from in-store to online, they will compete ferociously to sustain margins and price points. This is already happening in China and elsewhere and it’s likely to put manufacturers under extreme margin pressure. Anticipate this in your-medium term plans and gear up for wholesale changes in the retail landscape.

2. Anticipate shopper behavior – practically speaking and in the short-term, online sales are most likely to come from the younger, more time-poor segments of the population. If your brands depend on young singles and new families, it’s these segments whose attitudes and propensity to shop online you need to understand now. It will be important to understand how many people will shop online and what would motivate them to or prevent them for doing so. Quantify this so that you can estimate the potential flow of volume that you can expect under different scenarios.

3. Anticipate the needs of an online channel – online retailers don’t need to worry about availability in multiple stores – what’s key is availability in their warehouse at the point of demand. This will require a responsive demand planning and replenishment approach that works in tune with e-tailers’ forecasting and fulfillment systems. Online retailers will be much less forgiving as they seek to hold optimum inventory levels. Online retailers will need to know more about the people consuming and buying your products so that they can make fast judgments about which segments to prioritize and how to increase basket size

4. Develop an understanding of how shoppers buy online – Today many online grocery retailers mostly catalogue alphabetically (which means shoppers see products that begin with A first). If your brand begins with C, D, P or O – you won’t be seen first. This means that Aquafresh will probably outperform Colgate online, especially when Aquafresh offers the first three SKUs half price as they do today on Tesco’s mobile app. Shoppers will need to change: today they are used to navigating in-store environments by using brand cues like colors, fonts and block merchandising. This doesn’t happen online – shoppers will have to find products in a completely different environment. Manufacturers have to lead in providing insight into how to get the most from a category online – otherwise the retailer will make up their own mind.

5. Plan where to invest and what to invest in – the structures of trade investment are about to change – the price of a home page Ad. could well become the largest investment companies make in the future, the cost of leading shoppers through search processes, creating curated product recommendations and personalizing offers will be high. In a world where the retailer can stock any brand, slotting fees could well become a thing of the past. But so could the notion of credit terms – in the same way that Amazon can print books on demand, online grocery stores can order to demand making payment on sale a logical way to avoid the cost of holding inventory.

6. Organize for change – things are going to be different and radically so. In an environment where a consumer can be sitting at home playing on Facebook or watching a video could spontaneously become a shopper, the concepts of above-the-line and below-the-line advertising are going to merge rapidly. Key account and trade marketing teams will need new skills and technology to support them. New jobs will be invented, for which, the rules have yet to be written so recruitment will be tough. Find committed intelligent individuals who ‘get’ the idea of buying online and can leverage technology to manage complexity

I believe things are going to change radically and quickly and I’m pretty certain that some readers might think all this is a bit over-blown so here’s a few thoughts to consider: Let’s say I’m right and online takes off rapidly – if you act now, you get to benefit from being a leader in the space and not being a follower, you get to capitalize on a brand new channel for selling your goods. If I’m wrong and shoppers are slow to adopt online and sales are insignificant – taking the actions I’ve suggested above still make you more responsive to the market and more competitive as a result. The worst case scenario is that I’m right and you don’t act – consider the costs of catching up in a market that has already changed where competitors are ahead and where your brands have suddenly become invisible.

How Retail Consolidation Wrecks Consumer Goods Markets

 

I’ve been reflecting a lot on the similarities between the retail markets in Singapore and Australia. Both are dominated by two key retail players and both suffer similar issues as a result. Looking at these provides a great illustration of just how retail consolidation can wreck a consumer goods market.

1) Retailers get complacent

The lack of significant competition makes retailers complacent and perhaps more problematic limits the development opportunities for people working in retail which sustains the status quo.

The grocery retail sectors in both markets shows this. Both Singapore and Australia lack innovation and dynamism. In both markets grocery stores are dull and disappointing. Fresh food offers are surprisingly limited and packaged grocery fixtures are poorly merchandised. In both markets retailers claim to offer keen price points and yet Singaporeans and Australians alike pay more for food than most shoppers in the western world. In Singapore in particular online offers are poorly configured and many orders are poorly filled.

2) Consumer goods companies get stuck

With only two retailers to work with, both Singaporean and Aussie consumer goods companies have few places to go to distribute their brands. The big retailers therefore force the agenda. As they push price hard and limit the scope for inventive in-store activities sales and marketing teams get increasingly despondent.

As a result manufacturers’ creativity ebbs and talent moves elsewhere again sustaining the status quo.

3) Marketing expenditure wasted.

Sales teams in both markets complain of increasingly unreasonable demands for promotion support. Money is pumped into activities, such as poor quality press pullouts and in-store flyers which erode the equity of CPG brands whilst doing little to enhance the retailer’s positioning as anything beyond “cheap”.

One Australian sales manager complained to us recently that trade spend in Coles easily exceeded 25% of sales (the point at which most companies start loosing money). Whilst research we conducted in dairy showed less than 5% of the target market even read retailers’ ads or brochures.

Our research shows that up to 70% of trade expenditure could be wasted globally – nearly $200 billion a year for major consumer goods companies. Retail consolidation is likely to lead to this number growing in the future.

Consolidation is a global fact which affects every market to varying degrees and it requires marketers to do things differently. It’s time marketers stopped looking at trade spend as a cost of doing business and start think if this as a marketing investment.

To get a real ROI, this money needs to be focused on changing shopper behavior to drive greater consumption. Marketers need to focus on unexploited consumption opportunities and define the purchase behavior needed to realize these. Channel teams need to be far more granular in their identification of priority retail environment and spend in-store needs to be focused on behavioral change in these key environments. 

 

What makes shoppers buy?

 

In October last year I ran a workshop called “The Principles of Shopper Marketing” and it had the sub-title “A complete guide to turning shoppers into buyers”. I’m a little ashamed to say that subtitle wasn’t entirely true. The participants did get loads of good stuff: an integrated shopper marketing model; “how-to” guides for research, insight generation and shopper marketing strategy development PLUS we had a great time! But what one question I didn’t answer was “how do I turn my shoppers into buyers?” so let me answer it now.

I don’t know.

 

You see every individual is unique which means different shoppers, buying different categories, in different retail environments, will behave differently.  So how to convert your shoppers into buyers requires a whole lot of information. See the process of behavioral change is quite complex: a pre-disposed individual assigns specific meaning to a stimulus and commits to a new course of action. With a fair understanding of the individual, her pre-disposition and the meaning she assigns to a stimulus, behavioral psychologists have a reasonable chance of predicting whether or not that individual will commit to a course of action.

I’m not a behavioral psychologist and when asked, “how do I turn my shoppers into buyers?” I don’t have the information necessary to give an answer. What I can say however is what stimuli play a role in affecting behavioral change.

To make it simple we can group these stimuli into three categories:

  • Availability – since shoppers can only buy what’s available in the store this is pretty fundamental. Take a product off a shelf and pretty quickly you’ll see evidence of behavioral change – you’ll lose sales! But it’s not just about being in stock – it’s also about the messages you send in the way your product is made available. When your product is made clearly available by being highly visible in appropriate places where shoppers with a pre-disposition to buy are looking; there’s a good chance that you will stimulate the behavior you want.
  • Communication – unless you’re my wife, it’s difficult to stimulate a response with silence. In most cases shoppers respond to messages that resonate with their beliefs. So a pre-disposed shopper who receives a resonant message may respond by changing his behavior. There a hundreds of ways of communicating with shoppers so instead of giving a list I will offer some advice: shoppers don’t have time to process complex messages so whatever media is chosen keep your communication simple and clear.
  • Offer – this includes price, promotions and so on. It’s often presumed that price or promotions are the main stimuli for inducing change in purchase behavior. This is rarely the case and for a passionate articulation of the issues surrounding price see my buddy Mike Anthony’s post on the topic. What is important is to understand how offers influence the shoppers you are targeting so that money isn’t wasted.

These stimuli tend to work together rather than in isolation so defining the right blend  of the three is important. To get this right and to really turn shoppers into buyers, you have to first know which shoppers you’re targeting, and their pre-disposition to behavioral change in a given retail environment.

The next time I run my workshop (in Singapore on 14th and 15th August) I’ll be sure to make this really clear!

 

Is it me or is consumer marketing getting really flaky?

I meet a lot of marketers, responsible for a huge range of brands across some pretty diverse markets and after 20 years I’m beginning to worry.

As a practitioner in and observer of the consumer goods industry, I believe that despite recent improvements in performance, the industry continues to face some significant challenges: Input costs continue to escalate ahead of realized price points; the costs of effective media impressions continues to rise whilst trade consolidation pushes money into stores and quite frankly CPG is no longer the place to be if you are a ‘bright young thing’.

You’d think, in this environment, that it would be the expertise in consumer marketing that leading companies have that would drive the industry towards new growth horizons. And yet Deloitte’s analysis of the top 250 companies over the last few years shows a CAGR of just 3.7%. What’s going wrong? How come marketers can no longer deliver step change?
I think that the major reason is that as consumer marketing as a global discipline, born in the late 40’s and 50’s, enters its ‘third age’ it’s getting ‘flaky’.

Let me explain:

Despite what people would love to feel about marketing being an art, there is a hard commercial rationale at marketing’s root: marketers’ primary purpose is to grow sales profitably. This requires them to apply all of the tools available to them to grow consumption. At the risk of precipitating a barrage of disapproval; there are only three ways to do this: get more consumers to consumer more often and in great volume or at greater value (penetration, frequency and weight of consumption).

These are the only three ways to drive consumption and yet in the last six years I have not seen a single brand strategy that makes a clear statement about objectives in any of these areas. What I have seen are statements about the need to create awareness, innovation and to extend distribution. All are fine generic marketing strategies but the issue I have is their generisism: Surely they could be applied anywhere, to solve any problem? So without a clear statement of consumption goals to provide direction, these ‘strategies’ risk becoming feckless and wasteful.

Let’s take ‘awareness’ for instance. I saw data at a conference this week that demonstrated that there is little correlation between awareness and purchase and indeed that brands with low awareness can perform better in stores than those with almost universal awareness when the right mix is applied. Yet time and again we see consumer marketers justifying advertising only on the basis of creating awareness or impressions. Really, does anyone really not know Coke, Samsung, or Macdonalds?

What would be smarter would be to focus awareness driving actives on those who really don’t know the brand or its benefits Let’s take New Balance who in China were thought of as a local brand until the company began to create awareness of NB’s history (started on Boston in 1906 by the way) they are now out-growing the two leaders on the track.

Let’s look at innovation – the consumer goods industry has a fetish for novelty. Data suggests that in the US up to 10,000 new lines are launched every year yet only 5% of these ever go on to capture a sustainable share of the category. This novelty for the sake of novelty is counter-productive. It creates higher costs and injects unnecessary competition for often well-met consumption needs. Innovation should be focused on addressing unmet needs that expand consumption.

Lastly let’s look at expanded distribution. For many marketers the opening measure of distribution is “everywhere”. Obviously practicality bites and the ultimate outcome is constrained exuberance but what is most disturbing is how rare it is to find marketers who are able to clearly prioritize which retail environments are best suited to brands and SKUs. The demand for full distribution can lead to over stocked shelves, wasted distribution costs and unmet KPIs.

So what to do?

1) It’s time marketing got some real KPIs – simply put penetration, frequency and weight of usage should replace pure market share and objectives should be set against clearly defined consumer segments.

2) Marketing needs to move out of its box – brand managers should work not only on ‘love’ measures but also on ‘buy’ and ‘use’ measures.

3) Brand strategy must move away from being an extended media plan and towards a coherent business plan that looks beyond the generic and into the truly strategic.

4) CEOs, CFOs and CMOs need to challenge their marketers to be accountable for seeking and delivering untapped growth rather than incrementalism.

As consumer marketing enters its third age it’s time to embrace maturity, wisdom and mastery rather than regressing into adolescence.