Future of Food Retailing Paints Complex Picture

BARRINGTON, Ill. — There is no crystal ball to foretell what the future holds for food retailers. However, Willard Bishop's "The Future of Food Retailing Report 2015" takes aim at tuning into the changes on the horizon.

The report was the basis for the research firm's "The Future of Food Retailing: Shopper Behavior Is Driving Retail Evolution" webinar Wednesday afternoon. The webinar was co-presented by The Food Institute and sponsored by BMO Harris Bank.

"Evolution in the industry has sped up significantly in the past few years," said Brian Todd, president of The Food Institute.

He noted the organization's daily newsletter is "chock full of news about the battle between traditional and non-traditional grocers — the latter of which we must keep expanding the definition and now includes dollar stores and online sector."

Outside issues have shaped the food retail business during the past few years. The great recession, combined with food inflation of 2007 and 2008, and then again in 2011 really shook things up over the last few years, explained Jim Hertel, managing partner of Barrington-based Willard Bishop.

"The good news is the economic recovery is well underway and it continues. The bad news is that the economic recovery is probably slower and less robust than has been the case with other recoveries from recessions," he said, adding some of the long-term impacts are still being felt.

That being said, even with projected food inflation, Willard Bishop expects relative stability in the economy and that's a good thing for food retailing going forward, he added.

Shifts in Share

Looking back to last year, traditional grocery shares seemed to stabilize — and grew slightly — from a market share perspective in 2014 vs. 2013. However, digging beneath that, the growth was not driven by traditional supermarkets but by growth in fresh format stores that are focused on natural, organic and better-for-you products and limited assortment stores which are focused on delivering value.

"Traditional supermarkets are still at risk and still challenged from a share standpoint," Hertel said.

Within non-traditional food retailers, dollar stores were really "the standout performer." Wholesale club and supercenter shares stayed almost even and "the big loser was the mass channel with a 6-percent reduction in store count," he explained. 

Convenience stores experienced modest growth, according to Willard Bishop.

Looking at format ranking, "the big news of today is e-commerce and fresh format stores ties neck and neck in 2014 on a percentage growth basis," Hertel explained. 

And even though e-commerce only holds a low share — about 2 percent of U.S. food retail sales — Willard Bishop thinks it has the potential to be a game changer and have ripple effects that go beyond its market share, he added.

As the firm's latest report found, the traditional grocery channel's dollar share has decreased by about half since 1988, while non-traditional grocery and convenience stores competed for the food dollar. Specifically, the non-traditional channel's dollar share jumped from 2 percent in 1988 to 39 percent in 2014, and the convenience channel's dollar share almost doubled from 8 percent to 15 percent over those 25-plus years.

By 2019, Willard Bishop predicts traditional supermarkets will continue to lose dollar share to other segments of the traditional grocery channel, like fresh format and limited assortment. C-stores are expected to remain relatively stable, with only a 0.2-percent dip.

"The big news, in terms of where the growth is, is in e-commerce," Hertel said. That includes pure plays like Amazon.com and "click-and-mortar" operations.

According to Hertel, there are four stage setters for the future:

• Continued population growth;
• The increase number of ad occasions in print and digital;
• The rise in social media ad spending; and
• A near tripling in the number of Internet devices. 

"Competition for the shopper has been very intense for the past 10 years. Just think about the next five years," he said. "Technology is going to have a tremendous impact."

Full Speed Ahead With Technology

The notion of value and connecting with shoppers in turn gives rise to the notion of personalization and localization, added Craig Rosenblum, partner of Willard Bishop. 

"As we truly think about how we are going to drive value or personalize price, as it were, to our shoppers we really have to do it today in the context of recognizing that the way we provide promotions to our shoppers is going to vastly change from the traditional print ads we have in our stores or that we are putting in mailboxes to one of personalization in the digital context, the social context, and the way of providing shoppers anyway that they want it or choose to get it — and personally the way it is going to change their loyalty or their shopper experience," Rosenblum said.

But that doesn't mean retailers are going to abandon the in-store experience, he added. Technology in the store will also help drive decisions at the shelf and, more importantly, help influence decisions at the shelf and hopefully drive an even greater or improved shopper experience or loyalty in the store, Rosenblum explained.

"The way we drive the decision in the store is vastly changing as we sit here today and will continue to vastly change as we move forward," he noted.

Top-of-Mind Changes

With the picture getting more complex, Willard Bishop has identified some ways retailers can grapple with the future. The first, according to Hertel, is smartphone applications and the ability to break through the clutter. Apps will continue to improve the user experience, he added. 

The second is understanding the importance of innovation as well as disruptive innovation. There have been two noticeable trends in the area of innovation in the past three to five years: the uptick in new product launches and the frustration of the retailer and manufacturer on the delivery of "incrementality" on those new product innovations, Hertel noted.

Coming to grips with the brave new world takes understanding shopper behavior in a quantitative way, developing a strategy to differentiate and quantify the value that you are delivering those shoppers and being able to do it wherever and whenever the shopper is interested in shopping — something retailers and manufacturers have been doing all along, Hertel said.

The difference today, and going forward, is that it is more complex to execute and more individualized, he added.