Grocery of the future: moving forward

Part II of II

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Grocery of the future: moving forward

In describing the different concepts that may give shape to the store of the future, I will use Chris Walton’s methodology of ‘Store of the future – Innovation Tracks’ summarized in the image below.

1.      The first track is made up of incremental improvements. Initiatives that already exist today. They may be leveraged but do not change the current business model.

2.      The second track is real innovation. It changes the business model in a scalable manner.

3.      The third track is a concept store. It may work or not. It is an experiment which may generate ideas for tracks 1 and 2.

First track initiatives: Incremental Innovation:

1.      Many more quality private labels. The experience of Costco, Mercadona, Trader Joe’s, Aldi, Lidl, Tesco, D1 and Justo y Bueno among many others, will definitely be replicated by the mainstream retailers with more or less success. The recent success of online wholesale retailer Boxed with its private label ‘Prince and Spring’ should encourage almost everyone to do at least as good of a job as they are doing. Higher margins and differentiation mean healthier P&Ls (Profit and Loss statements) and increased shopper loyalty. It baffles my mind how some of the largest retailers are still doing such a poor job with private labels. Feasibility & scalability: high

2.      Narrower curated assortments. In the age of internet sales by most retailers, it no longer makes sense to stock thousands of slow moving SKU’s in the point of sale. Only best-selling highly curated items will remain in sales floors. This will reduce shopper anguish (over excessively large assortments that impair purchasing decisions) and lead to leaner shopper experiences. Increased focus on high turnover items will reduce inventory costs and increase asset turnover. ROIC will likely increase. Feasibility & scalability: high

3.      Store tastings and demonstrations. The space allocated to store tastings will increase. The staging will be enhanced. No rickety carts or flimsy tables or poorly uniformed personnel, but specially designed staging areas that enhance the sensorial experience (visual of course, but also aromas) and facilitate cross selling and bundled combinations. Staffed by experienced personnel, with extraordinary personalities, sharply dressed not only adept at cooking the various recipes, but also deeply knowledgeable about their products attributes and uses. Vendors will snap up the opportunity to fully display their products characteristics. Despite their success, Costco’s sampling efforts can definitely be improved. Notice the distance between many of the sample stands and the products they are actually promoting. The branding (usually deficient) ¹ can also be improved. Trader Joe’s efforts although better staged, have difficulty trying to convert those efforts into actual purchases. A fine line must be thread here; too obvious of an effort will be spurned by shoppers and on the other hand weak purchase conversions will mean vendor lose interest.

Retailer P&L will not change significantly, as long as enough vendors can be enticed to finance initiative. Financial objective should even be to generate an additional source of income for retailers based on showrooming effect. I visualize a hibachi or sushi bar type experience extended to other recipes and cuisines (Cajun, Tex-Mex, Asian, Hispanic..). I would strongly encourage a direct sales linkage and close monitoring of ROI for vendors in order to ensure loyalty. Feasibility & scalability: tastings – high, better staging – medium.

4.      In-store independent producers. A few years ago in France, I witnessed how hypermarkets would do ‘farmer’s market weeks’. They would negotiate stands with local producers within the stores. This allowed small independent farmers, ranchers, cheese and sausage producers to display and sell their merchandise in a new venue. I am unclear on how local food safety regulations might come into play here, but with the consumer trend to buy local grown produce it may be worth revisiting the concept. Carrefour prominently displays merchandise from local producers in specially designated spaces and communicates this throughout the store. The concept is scalable even though of course the producers and merchandise will be hyper local. The offering can be tailored to accommodate each retailers target and local demographics. This will help break the monotony of hyper standardized store layouts and improve shopper experience. Feasibility & scalability: medium.

5.      In-store recipe displays. This could be done just as Bilder & Declerq does. Rotating weekly recipes, with take-home instructions and all necessary ingredients grouped together and available for customer picking of just the right portions. I visualize however a simpler version; I have trouble with the idea of a customer picking just one garlic clove or small rosemary branch and weighting it at the cashier. I urge, even B&D, to just group ingredients around the visual and text recipe in an island. Smallest common denominator packaging perhaps even under a private label. Very close to the islands already implemented by retailers such as The Fresh Market. These portioned ingredients could then be packed as many meal kit companies already do for curbside pickup (‘Click & collect’ – my recommended option) or home delivery (with third party – like Deliv among others). Buying a meal kit company would definitely give instant credibility to the initiative. Selected regional stores could be converted to ‘dark stores’ to supply fresh ingredients daily. Just as Brittain Ladd argues in this article and Bilder & Declerq already practices, serving office workers in dense corporate centers through a mobile app prior to their evening commute would make very much sense. How would this impact retailer P&L? Higher costs, right. Portioning and packaging all the ingredients into recipe sized quantities under an own label will surely cost money. Designating dark stores to do so, would as well increase costs. But as any retailer knows the smaller the size or serving, the higher the margins. Shoppers are not very price sensitive for items whose cost is less than one dollar. They will be sensitive to each serving overall price and this cannot exceed that of a meal at a casual restaurant. So higher costs are a given and higher margins are potential. The final result will depend on how smart the execution is. Feasibility & scalability: only for retailers with a strong stomach.

6.      Pit stop ‘click & collect’. The current experience is still in its infant steps and too slow for most working class households. I am solidly skeptical still about the economics of home delivery. Curbside pickup however, sounds like the logical next step up from the current brick & mortar store experience. Investing in efficient picking, bagging and curbside delivery is therefore the obvious decision. The current ‘click & collect’ model is little more that picking and bagging for in-store or parking lot pickup. This needs to evolve to ‘F1 pit stop’ delivery where time is reduced to its minimal expression. Covered delivery lanes need to be setup, much like current gas stations, where cars pull up and attendants (or customers themselves) simply load the bags into their trunks from carts and lockers. This would significantly expedite the process and reduce customer wait and loading times. Feasibility & scalability: medium.

Second track initiatives: new business model

1.    Purchase groceries, eat in or take out a prepared meal: serve yourself. This initiative is a remake of Galeries Lafayette Gourmet Paris store (where you can do all three) and Time Out’s Market Lisbon location (where you can buy groceries in an annex location) merged with Alibaba’s Hema Supermarket. The first two business models are based on just one location by major urban center. It is scalable on a national (large countries) or global scale only. Main source of revenue is tenant rent. It may be complemented with own grocery sales, branded and private labels. The idea would be to combine grocery sales for home consumption with on premise consumption prepared by specialized independent vendors. The prepared meals can thus also be picked up in store, curbside or home delivery. This would in effect turn back-of-house operations into an event for all shoppers to see. If the preparation is done surgically clean, with honest ingredients it may convert grocery shoppers into prepared meal shoppers with subsequent higher margins albeit marginally higher operating costs. 

The Hema Supermarket integrates two of the concepts from Time Out’s Market and Galeries Lafayette Gourmet, grocery shopping and eat in prepared meals with a picking and distribution center for home deliveries and mobile fluency. Again, what is remarkable is the convergence of formats from different parts of the world highlighting freshness through eye popping displays and staging and food preparation as a show to enjoy with friends and family. The key elements here are ‘freshness’, ‘spectacle’ and ‘communal’; three attributes difficult to replicate if you are a purely digital retailer. It is ironic that it was Alibaba, a digital retailer in its origin, who underlined that for all retailers to see.

Time Out’s plan to launch food halls across the US in 2019 can be gleaned in this article from Restaurant Hospitality. It suggests the numbers for the Lisbon location look good as is customer loyalty and repeat purchases. Based on the claims made in the article, the Lisbon location had approximately 4 million visitors in 2018. At $20 per transaction average, this yields approximate sales of $ 80 million and close $ 4 million EBITDA or roughly 5% of sales. Not too impressive but certainly something more efficient players can improve upon.

Homogeneity across locations is feasible up to a point. Look and feel may be the same, but vendors will definitely have to be recognizably local. As Didier Souillat said to Restaurant Hospitality “We actually make the deals with the chefs very simple, where we ask them to come in with an order taker, a couple of chefs, pots and pans and six or eight items for the menu that represents them well,” said Souillat. “We take care of everything else.” I suspect Souillat is exaggerating the point, but the very simplified arrangement and menu must be a fixture.

Galeries Lafayette move to expand their gourmet section to a new location across the street also suggests the numbers are encouraging, although based on the tepid growth rate they are nothing to rave about. Again, other more efficient and experienced managers can certainly twitch the model here and there to improve those numbers. The key differentiator of the business model is to truly select the best local chefs-restaurateurs and entice them to become tenants. The challenge here will be to translate this for lower income demographics avoiding the food court look and feel of many malls.

Hema’s plans to open hundreds of new stores in China also suggest encouraging financials. Whether the Hema Supermarket can be rolled out in exactly the same format across all locations is something that intrigues, but would not surprise me, given the scale and speed of progress in China.

Conclusions:

The seeds for the future of the grocery store are already planted. Most of these concepts already exist, shoppers demonstrate their success, week after week at the points of sale. Just look at shopper traffic around Costco’s tasting stands within their stores or at Time Out’s Lisbon location. These concepts just need to be refined and profitably scaled by experienced managers adept at marketing and deploying new concepts but also cost cutting.

If anything, the challenge for most retail companies revolves around the speed of thinking. Let alone testing and rollout. Despite the continuous ongoing discussion regarding the need to ‘innovate’, I continuously run into arguments based on the “you can’t argue with success” or “we have done it like this until now, and see no need to fix what is not broken” or “not our core business” syndromes. Until it is too late, I guess.

The trends discussed above have been brewing for years and only recently are beginning to be addressed. The fundamental issue then for most organizations is why are they so slow to react. Why is it so difficult to listen to the thunder that signals the approaching storm? Is it the noise that impairs the listening? Why not just go outside and test the best ideas? Why do we fear so much failure? That’s why the best CEOs will be those that are most willing to listen to their organizations, shoppers and shareholders, those that play the ‘infinite game’ (Brittain Ladd dixit).

 ¹ I want to mention something that pains me on this point; the personnel that mans those Costco tasting stands is, despite their best efforts, poorly trained and uniformed. I am not referring to age or personal grooming. I am referring to uniforms and staging. I want to be clear what I am referring to; for example at one of my periodic Costco visits, I was very helpfully enlightened by a 70 yo Quebecois gentleman about the fact that a ‘steel head’ was not ‘salmon’. His personality, however, was impaired by a very poor uniform and a 'shoe bag' hygienic cap that looked horrible and diminished his great personality and outstanding willingness to help customers. In short, the whole initiative needs an image refreshment and much better staging. I am certain suppliers would be more than happy to participate allocating in-store promotion funds as long as they perceive a return on their investment.

Disclosure: The author does not have any relationship, working or otherwise, with any of the companies mentioned in this article.