Sitting Duck Dynasty: Is Traditional Grocery Doomed?

August 25, 2014 Newsroom

 

Listen Jack. Digital is a freight train, and you can either jump on board or get run off the tracks. The choice is simple for the grocery industry, who have been slow to adopt emerging technologies to engage consumers. The tide is shifting and some retailers are getting smart with new digital strategies and initiatives. We just returned from the California Grocers Association and GMA/FMI’s Collaborating For Growth conferences. Here are a few key trends we heard about from key industry leaders and experts.

 

One thing is clear, there is consensus that the landscape of traditional grocery is ripe for disruption. Retailers that make concerted efforts to align themselves for this seismic shift will thrive, while those that do not will be left behind or swallowed whole. It’s as simple as that and the reasons are clear.

 

The Next Piece of the Pie

Consumption is generally predictable and has remained flat. We know the size of the pie; people need food and that is obviously going to continue. So where is the growth going to come from? Product innovation and new offerings can increase consumption, although 9 out of 10 new products fall short. Outside of stealing share from competitors, the only considerable change also leads to the next observation; shifting demographics.

 

Millennials are the largest growth opportunity for food retailers. As it stands, traditional grocers aren’t doing enough to capture their still nascent loyalty. A seamless digital experience across channels is an expectation, not a value add offering to this tech savvy, or more accurately, tech dependent generation. It has to be simple and it has to just work- period. Millennials present the largest lifetime value of any other grocery shopper demographic. To put that into perspective, consider that by 2017 Gen Y’s spend will surpass that of the baby boomers, grocery’s current reigning demo. 37% of statistics are completely fabricated, but that is staggering if true in essence. Grocers must capture this generation as they become more autonomous and are still in the process of forming buying habits. This will be an uphill battle given the next point.

 

New Choices

Amazon has famously said that “we are not a company that sells things, we are a company that helps people buy things.” Amazon Fresh may be the scariest threat to the industry, and has plans to more than quadruple distribution square footage in the coming years. With the proliferation of eCommerce offerings will come increased options and channels for acquiring goods. Right now industry estimates have Amazon’s new Fresh service alone accounting for 10-15% of the total grocery market over the next decade. That is a serious bite out of traditional grocery retailer’s business, especially if consumption holds steady. Grocers must provide a compelling offering before there is a more convenient and affordable choice. Otherwise customers will be leaving for newer and better options in droves, as evidenced by center store categories impacted by emerging online players like Diapers.com and Dollar Shave Club.

 

Caution: Opportunity Ahead

So how can grocers spur growth in such a tumultuous business climate? Within the challenges lie the greatest opportunity. The answer involves a shift in thinking away from what is best for the business, and putting the customer in the center of their universe. After all, you can only squeeze so much growth out of optimizing the value chain P&L. As one speaker quoted John Sculley, former President of Pepsi Co. and CEO of Apple “Make the experience the hero, not the product.” Doing so will allow grocers to build a connection with customers that fosters loyalty and ultimately drives top line growth.

 

Overall, we came back with a renewed sense of determination for the work we are doing at Mercatus. We believe fervently in our purpose to help grocers improve their customer’s experience through digital engagement and integrated commerce. It’s really an exciting time to be in an industry on the cusp of a major paradigm shift like the one facing grocery.

 

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