Retail Rundown: Big Grocery Special

Julia Raymond Hare:

Hello and welcome to a special Big Grocery edition of the Retail Rundown Podcast. I’m your host Julia Raymond Hare. Today we are going to take a deeper look at the state of the grocery industry.

Julia Raymond Hare:

Before we hop in, one announcement, we’d like to engage with you and all of our listeners directly. And now we have an opportunity to do so. Soon we’ll be hosting live discussion you can join using the newer mobile-only app called Clubhouse, which is currently only available on iOS devices. If you’re on Clubhouse or plan to be, follow the club called RETHINK Retail to be notified when you can join us live for an after party discussion on the aired Rundown episode. 

Julia Raymond Hare:

The first live discussion will occur the day this episode aired, on Monday March 22nd at 4 PM eastern time. Hope to see you there.

Julia Raymond Hare:

Now a year into the COVID-19 crisis, the world has watched as the grocery industry continues to prove its resilience, most notably through the rollout and adoption of same-day pickup and delivery services.  

Julia Raymond Hare:

According to a recent eMarketer report, online grocery sales surged 54% to $95.82 billion in 2020 and online grocery sales in the U.S. are expected to exceed $100 billion for the first time in 2021. 

Julia Raymond Hare:

In addition to pick up and delivery, Big Boxers have been upping their grocery game with new product launches – Target’s Good and Gather grocery line, for example, generated $2B in revenue last year. Target will also soon launch another food and beverage line called Favorite Day, which will feature over 700 indulgent treats, such as baked goods, gourmet sweets, and mocktails. I bet we’re all looking forward to trying out Favorite Day when it hits store shelves next month.

Julia Raymond Hare:

Today we will hear from several thought leaders with their fingers on the pulse of the grocery sector. Up first, we will hear from RETHINK Retail advisor and TD Insight’s CEO Tony D’Onofrio. Not only is Tony an expert on all things retail, he’s also seen firsthand many of the innovation projects taking place at Walmart’s Innovation Lab. Let’s hear what he had to say:

Tony D’Onofrio:

Grocery as a sector was literally an essential benefactor of changes in the retail industry in the past year because of the pandemic. Grocery sales, which were only up 3% in 2019, jumped 11.5% in 2020. The stars were the new service, such as buy online and pick up instore, or BOPUS, which were up 27%. Consumer gave these services four out of five stars, post to holiday seasons. Major disruptions occurred in the supply chain during the pandemic, with consumers’ number one pet peeve, being out of stocks. Post a four-week initial surge, consumers were still experiencing one in 4.2 items that they wanted being out of stocks. This is why large grocery retailers, such as Walmart, announced spending $14 billion in their new physical year highlighting a greater focus on smarter, more efficient supply chains.

Tony D’Onofrio:

Online grocery shopping is not going away anytime soon. It spiked 54% in 2020, will cross over $100 billion in sales in the USA in 2021, and will continue to grow 18% per year to 2024. Having said this, by 2024, roughly 86% of grocery sales will still be in physical stores. Brick and mortar is not dead, but it will become much more efficient, including taking a more leading role in delivery fulfillment.

Tony D’Onofrio:

I’ve been lucky to have been working with multiple new technology companies in Silicon Valley and Europe focused on sectors, such as grocery, the hottest technology that I see right now, targeting improving inventory accuracy, studying and optimizing the customer journey, and we do see waste and cost to allow for more investment in other areas. Retail leaders, which are defined as those that grew 10% plus in 2019, are spending much more on technology. At the enterprise level, in 2021, they are increasing IT budgets 6.6%, and at store level 4.5%. We’d encourage this audience to follow closely developments in computer vision, coupled with artificial intelligence, as that is becoming a major transformational solution to address the challenges of where retail goes next, especially in grocery. Two totally leaders already emerging in this space are [Agrasen 00:01:05] and [Focal 00:01:07]. For all retail sectors, COVID-19 has become a brutal accelerator of digital transformation trends that were already underway. Technology will be a key differentiator for the winners ahead.

Tony D’Onofrio: 

By far the greatest opportunity for grocery is to improve their inventory accuracy. An astounding 5.9% of grocery sales were lost in 2020 because of out-of-stocks and the pandemic. Do I need to remind everyone that the world almost came to an end in 2020 when we all thought we were running out of toilet paper. The good news, according to Bain is that grocers’ net promoter scores have been trending up recently. The bad news, the top three shopper-identified challenges that are keeping these scores from going even higher are, out-of-stocks, too many product substitution, and lack of range or brands consumers were looking for. Retailers need to improve inventory accuracy, fix out-of-stocks, monitor, listen and communicate more closely with their customer base. Work on improving the consumer experience, especially those new services and don’t let up on safety anytime soon. Failure is not an option, 46% of consumers tried new brands, all made purchases with new retailers during the pandemic.

Marc Babin:

Hi, my name is Marc Babin. I’m a digital content lead at Anyline. We are a mobile tech company based in both Boston and Vienna, Austria. We specialize in mobile data capture from retail and logistics to travel and hospitality and even security and law enforcement. Our technology allows operators and customers to have enterprise-level data capture technology directly on their own mobile devices. In retail, this means more efficient workers, greater data accuracy, and improved customer engagement.

Marc Babin:

This past year has certainly seen its fair share of disruption through the retail industry. Retail operators have had to shift the way they market and deliver their products, and it has been fascinating to see the industry adopt both new innovations while also stepping back to more common and familiar grounds. Things like BOPUS, which had been around for a very long time and mastered by some of the larger chains, became a staple in 2020 as a form of revenue.

Marc Babin:

Another common disruption we saw was the significant failure in the last mile of retail deliveries. We recently ran a large survey with US shoppers and found that three quarters had encountered a problem with their delivery in the last year. This clearly has an impact on customer trust and loyalty to retailers and shows the importance of a reliable delivery network on the bottom line of every retailer.

Marc Babin:

At Anyline, we specialize in making versatile mobile solutions that help retailers work smarter at every step. How do we do this? By giving them the power to capture data directly on any smart device. Let me give you a few examples. In the back of house, retailers like the European wholesale giant Metro are optimizing their inventory management by letting workers scan the barcodes on incoming and outgoing products. Depending on the need, stores can also track things like documents, serial numbers, and even delivery truck license plates and ID documents.

Marc Babin:

With the new drive towards contactless shopping options, the same tech can make life easier for front-of-house employees organizing products for curbside pickup, BOPIS, and home delivery. Mobile scanning also makes it easier to complete everyday tasks faster, like shelf stocking, price and expiration date checking, and even ID verification, all on a standard smartphone. From a CX perspective, integrating mobile data capture into customer-facing applications and on websites allows for much more engagement than ever before. From self-scanning to scan-and-go shopping, health-conscious consumers want more control of their in-store experience and the power to use their own device puts the power back into their hands.

Marc Babin:

The greatest challenge and opportunity facing grocers is mediocrity. The current retail environment is one endless opportunity as everyone scrambles to find their place in the new normal. Often, these decisions lead to short-sighted strategic decisions and perhaps guessing what is best rather than knowing what is best. And speaking with our many partners and industry experts, we have learned two major things. Data is more important than ever, and good is not good enough.

Marc Babin:

When it comes to data, there has never been a time in recent history where retailers are able to collect so much of their own data and drive decisive growth from it. Grocery is a thin margin business and having access to your customer habits through collected data is literally a cheat code into guiding your strategic growth.

Marc Babin:

On the other hand, we are seeing well-known brands drop off the map each and every day, simply because they have nothing defining and nothing that draws organic attention from shoppers. Good is not good enough in this new age. And as your friend at Steve Dennis says in his book, Remarkable Retail, “If you are not remarkable, you are obsolete.”

Julia Raymond Hare:

You just heard from Anyline’s Marc Babin. We met Marc during Shoptalk’s Groceryshop Meetup last week where he introduced us to some of the cutting-edge solutions Anyline is bringing to the grocery space. To learn more about how Anyline can help your business, be sure to check them out at www.anyline.com.

Carl Boutet:

Carl Boutet, chief retail strategist for Studio RX and most recently named part of your 100 Most Influential Retail Thinkers, an honor and a privilege that I really appreciate. So let’s talk about grocery and the future of it and how it’s been impacted by the pandemic. First things first, I think the spring of 2020 was clearly a portal into the future. The first lockdown showed us, with massive digital adoption occurring in a matter of days and weeks, how unprepared the channel was for that occurrence and how the logistics and technologies could not support such a push forward into new digital adoptions, and showed the grocery leadership quite honestly where their vulnerabilities were. And we’ve already been seeing massive investments around automation, fulfillment and how the grocers are going to have to meet that digital demand more quickly for all sorts of good reasons.

Carl Boutet:

Secondly, maybe less tied to the pandemic, but a trend we already saw, was sort of automating out the recurring low-consideration purchases, i.e. the center of the grocery store. So we’ll see more and more of that, but the periphery of the grocery store still remains very relevant, as it is where the discovery and the margin is made, and grocers are going to have to double down on that to maintain their relevance, either if they don’t want to be fully automated out, and i.e. replaced by all-virtual channels.

Carl Boutet:

Lastly, this dependence on Instacart obviously was increased, and services like it. Third parties that basically own their relationship to the customer and the data, for me, are quite concerning. Reminds me of Amazon in the early 2000s when Target and Toys “R” Us decided to basically outsource those skills and that knowledge to third parties, creates real weakness and I hope grocery leaders will be thinking about that as they continue to invest and build their strategies around their digital channels, which should be complementary to their physical ones.

Carl Boutet:

So very exciting future for grocery with obviously lots of challenges like every other category, but this one in particular, I think is important. Because don’t forget, grocery has the highest volume and velocity of purchase, which larger retailers like Walmart, Target and Amazon clearly see as the pipe of stuff to the consumer, either in their home or wherever they are, and expect grocery to almost be the Trojan horse of the future of retail. I appreciate for the opportunity to weigh in on this and look forward to reading and hearing from the others.

Oliver Banks

Hey, I’m Oliver Banks, retail transformation consultant at OP&Co and podcast host of the Retail Transformation Show. Now there have been a number of different shifts in the grocery market over the past year. The industry has absorbed trade from closed restaurants, cafes, bars, schools, and workplaces. We’ve seen shifting volumes across the estate as city center convenience stores ramped down and residential locations ramped up, as large parts of the world converted to working from home. Online has of course been a big growth area in all categories of retail. And that’s definitely true too for grocery, both in big weekly shops, as well as smaller top-up missions. But we must remember that the majority of action still remains in store for grocery, for the moment anyway.

Oliver Banks:

There’s been widespread recognition from the general public of the essential work that supermarket teams do. Colleagues have stepped up to the challenge and have had to put themselves in danger day in, day out. But ultimately we are still reliant on customers doing their bit too with regard to safety. And sometimes that’s not so easy, putting stress and strain on colleagues and other customers too. Supply chain chains have had to be agile and flexible, but also fast. As demand soared, we saw examples like toilet rolls showing us the importance of the most basic factors, things like availability.

Oliver Banks:

Key trends to look out for include looking after your people considering aspects like mental health and inclusion, of course, but also focusing on retaining talent and developing the brilliant people that will be tomorrow’s retail and business leaders. Customer experience has often been put behind Covid compliance for the past few months. But I think we’ll start to think about how we can bring a bit more joy, a bit more fun back into food shopping. The online sector will continue to grow, although I do believe it will stabilize. And of course, there are challenges to address around profitability and capacity too. And of course, we can’t forget the increasing importance of sustainability and I feel that’s going to come back onto the agenda clearly and quickly as the pandemic subsides.

Oliver Banks:

The greatest challenge facing retailers will be to stay flexible to the post-pandemic trade patterns, which could a significant drop in revenue as hospitality picks up. An unpredictable return to workplace locations leading to a rebalancing of the estate once again. And of course, a desire to keep that same volume or more for online fulfillment. Whilst of course overcoming the profitability challenges. The opportunity is to develop that operating model that is lean and customer-focused whilst retaining some of the agility that we’ve seen that has allowed the graces to transform and change quickly as we’ve seen plenty of times over the last year.

Julia Raymond Hare:

We heard a lot about the North American and European grocery sectors today, but before we wrap, I’d like to turn our focus to China and its tremendous supermarket industry. Joining us now from Hong Kong is Ashley Dudarenok. Ashley is a three-time Amazon bestselling author, a China marketing expert, and the founder of ChoZan. Ashley, can you tell us a little about the grocery trends you are seeing in China?

Ashley Dudarenok:

Hi, guys. Ashley here. So today I would like to talk about how grocery has been disrupted over the past year in China. Indeed, it has been a huge, huge, huge move towards digitalization. Last year we’ve seen all the people that traditionally in China would purchase groceries very often in the wet markets also starting to use apps. Groceries are right now done digitally. For example, you’re on the way from work, you can scan a QR code and order groceries to come to your home. So essentially when you arrive home, the grocery bag is already there. And there are a lot of places from Seven Fresh powered by JD to Freshippo powered by Alibaba that virtually guarantee in big cities, a 30 minute or below delivery.

Ashley Dudarenok:

At the same time, we see all the people ordering groceries inside as well very frequently. At the same time, we have seen a huge rise in livestreaming, especially for agricultural product. So fresh fruits, or for example, you are into some seasonal crayfish, et cetera, lobsters, et cetera. All that can be ordered directly from farmers via a livestream. And on livestream the bloggers guarantee that this is fresh, this is cheap, and essentially this is going directly essentially to your house and you feel great because you’re not only getting fresh produce but also supporting the farmers and their operations as well. At the same time in China right now, when it comes to improvements, what do we see in terms of store tech, operations, distributions, et cetera? We see tons of, they’re called community retail. What does it mean? It means if I have a house and just downstairs, basically from my blog, there is a 7-Eleven grocery store or a small neighborhood convenience store, when I come in, there’s a QR code for me to join the group.

Ashley Dudarenok:

The group of this specific store and all of my neighbors living in this neighborhood will also join this specific WeChat group. And on this WeChat group, the shop assistant from this grocery store is going to talk to us about the latest arrivals. Or for example, if I purchased, let’s say instant noodles and I do not know how to cook them properly, I can also ask in that group and shop assistant along with my many neighbors will come back to me with their insights on how to cook it best. So this private pool and this community retail is being very, very popular in China right now. We see neighborhoods ordering fridges together. We see neighborhoods and neighbors ordering groceries, as of greens, for example, from the farmers directly to come and basically be dropped down in their courtyard to pick up. And at the same time, we see these grocery stores operations as I described above.

Ashley Dudarenok:

In terms of the biggest challenges and opportunities facing grocers in the coming year, I would say challenges, just make sure you digitalize fast enough because speed, speed, speed is extremely important. Make sure that your supply chain is handled. Make sure that you are comfortable putting yourself out there through livestreaming for say, and that you train your staff. I think it’s extremely important to learn how to operate direct to consumer and build this community feeling indeed. In terms of opportunities, I believe that in the future groceries are going to be done digitally. There’s going to be new retail. There will be a very interesting merger between online and offline. It will be all about entertainment, education, and at the same time sales. So in 2021, we truly all are in the entertainment business. We are all in show business.

Julia Raymond Hare:

You just heard from China marketing expert Ashley Dudarenok as she shared examples of some of the more innovative grocery trends currently on the rise in China. I want to thank Ashley and all of our guests for sharing their insights with us. From the adoption of curbside pick up to the extreme growth of Instacart and other same-day services, the COVID-19 pandemic has left an imprint in the way consumers around the world shop for food. 

Julia Raymond Hare:

It also revealed gaps in distribution and sales, which has in turn presented opportunities for grocers to continue improving their inventory accuracy. In China, agricultural livestreaming and farm-to-doorstep services are making their way into mainstream markets. And while shoppable live streaming is still in its early stages in most of the Western world, I can’t help but wonder if we’ll begin seeing farmers advertising and selling their products directly to consumers on Tik Tok. I’d love to hear what our listeners think about this trend. Drop me a note at julia@rethink.industries or tweet me @juliarhare to let me know what you think. 

Julia Raymond Hare:

Thank you for tuning in today, have a great week, and we’ll see you again next Monday. Special shoutout to our producer Gabriella Bock and audio engineer Trenton Waller.