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Enterprise Marketing & Promotions Management

Retailing… It’s going to be different!

By / April 2016


Ecommerce has come a long way since 1994. Today’s online shopper is able to find and buy pretty much anything from anywhere, from anyone, within seconds. With new tools, the Internet, desktops, laptops, tablets, and smartphones, today’s consumer has a new dimension of selection, service, convenience… and near perfect information. Traditional brick and mortar retail models are stressed. New tools mean new rules!

Think of it. Today’s consumers:

  1. …everybody buys something, yet nobody buys the same things
  2. …can buy almost anything, at anytime from anywhere.
  3. …cannot live without what things they did not know existed yesterday
  4. …the thing about consumer expectations is that it only increases.
  5. …consumer expectation is driven by experience.

These five points go a long way toward explaining how today’s consumers are discovering, adapting to and adapting to online grocery shopping. Bill Bishop and the Brick Meets Click team, sponsored by SAP Hybris, just released a landmark study of over 12,000 grocery shoppers.

Key insights are… well… amazing!

  • 41% of U.S. consumers have experienced buying groceries online.
  • 20% of US consumers are considered ‘active’ shoppers & spend an average of 16% of their weekly grocery dollars online.

For a really in-depth study of the genesis of online grocery shopping click on The Effect of Internet Distribution on Brick and Mortar Sales by Andrea Pozzi. Pozzi had rich access to actual ‘live’ retail data. A key finding — Overall store revenues raise by 13 percent once the service [online] is introduced in the zip code where the store is located’

Traditional grocery retailers are now being forced into becoming multi-channel retailers. Kroger recently announced its online pickup service to Dallas and Houston according to a recent article in Seeking Alpha. That story indicates online ordering represents about 8% to 10% of the store’s revenue. Kroger is committed to both testing and expansion of some forms of online shopping for its customers.

Think about it for a minute, if a retailer picks up 8% to 10% additional store revenue, as studies indicate, by adding some form of online, most of the increase will come from competitive brick and mortar only retailers with a resulting profound impact on the affected retailer’s ongoing viability. On-line represents, empirical evidence suggests, a significant competitive advantage. First Movers have a significant advantage. Pozzi’s paper gives some pretty sobering data based examples.

No retailer is immune from this consumer transformation. For the first time ever, Walmart’s revenue shrank from the year before according to financial data released March 30th, 2016. In an effort to ‘turn the tide’ reports are that Walmart management spent $11.5 billion last year, equivalent to JC Penny’s entire sales, to revamp stores, revamp its website, add other technology and expand their grocery pick-up program to better serve their customers.

More sophisticated consumers and competitive retailers are rapidly obsoleting grocery retailing’s traditional strategy of ‘pile it high and sell it cheap.’ With new data insights as to product/consumer relationships. A few years ago, I was able to access Frequent Shopper/POS data from a number of grocery retailers using up to 2 years of data per study set. The team I was fortunate enough to be associated with discovered some startling insights. Note: as a general rule, approximately 95% of all skus carried by a retailer achieved less than 1% house hold penetration. The genesis for looking at data that way was Chris Andersen’s The Long Tail. (Andersen’s observations appear to be just as true for physical goods as they are for digital products.) You might want to revisit his insight/hypothesis by clicking on the preceding link. Our studies consistently indicated that the highest penetration items were bananas at 40% HH penetration, however, over 95% of the items were 1% or less which led me to the general observation that if you carefully examine data at the individual transaction/basket level ‘…everybody buys something, yet nobody buys the same things.’ Remember, today’s consumer does not need to substitute the products they like for the products a retailer carries on the brick and mortar shelf. Today’s consumers…can buy almost anything, at anytime from anywhere. The retail reality is ‘Big head—Long tail.

However just adding online capabilities does not in and of by itself make a brick and mortar retailer… successful. The traditional grocery industry is up against some really stiff competition from non-traditional actors like Amazon. Note: If today’s consumers have near perfect information about the products they buy and the sources they buy from, the Amazon’s of the world have developed ‘near perfect information’ about their customers and are able to communicate on a customer unique basis.

Consider these numbers from a 2015 ExportX report, “(2015) How Many Products Does amazon Sell?”:

  • Total Amazon items 480 million products available in the US in 2015.
  • Amazon adds approximately 485, 000 products per day.

Amazon’s Grocery store type items include…

  • 1.7 million Beauty products.
  • 1.2 million Baby products.
  • 900,000 grocery products

…to choose from today that can be home delivered the next day… soon the same day.

That’s a very Steep Competitive Hill for the industry to climb!

Both retailers and brands must understand that the on-line experience for customers is different than the in-store experience. Mastering the digital space is survival critical. The understanding and implementation timeline is short.
Remember ‘new tools require new rules’!

  • Make all interactions with your customers as ‘frictionless’ as possible.
  • Provide consumers with filters that allow them to find the products they want without having to search through products they don’t want.
  • Use the right vocabulary to connect with consumers. Neuro marketing is about to become an increasingly important consumer communication understanding for both retailers and brands.
  • Both brands and retailers must communicate with consumers individually and collectively. Shared consumer insights are increasingly important to both parties.
  • Consumer data insights, metrics like correlations and affinities, near-real-time information are all part of the ‘must have’ tool mix necessary to compete for consumer support and loyalty.

Today’s consumers are redefining retailing. Consumer experience is now the most significant influencer as to whether a consumer will shop more or less with a retailer in the future. Retailing… It’s going to be different!

Contributed by Ron Lunde, Senior Marketing, Advertising Executive & Market Strategy Consultant
Ron held senior management positions in grocery retailing including Supervalu, Grand Union and Price Chopper. He was also a Sr. VP. at the Leo Burnett Advertising agency. Ron is credited with introducing Space and Category Management systems to the industry as well as working with the Price Chopper team to introduce and deploy the first data driven frequent shopper program in the US. He was also a consultant to the Financial Accounting Standards Board in developing the Issues that govern the accounting requirements for all trade promotion and marketing expenditures. Lunde currently serves as a Market Strategy consultant to retailers and CPG brands.


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