How will the food retailing landscape evolve in the next 10 years?
In 2000, the food retailing industry was in a state of upheaval.
A wave of consolidation had created supermarket giants with a scale built to rival Wal-Mart, the once-hot Internet-grocery segment appeared ready to flame out and home-meal replacement was all the rage.
Ten years later, the landscape has changed significantly — the consolidation race has slowed to a relative crawl, the online model has shifted and home-meal replacement has evolved from a small section of the deli to a thought process that reverberates throughout the whole store.
What will the next 10 years bring?
“We've been talking about 2009 really being the start of the next century,” says John Rand, director of retail insights at Cambridge, Mass.-based Management Ventures Inc., which is part of Kantar Retail. “The first eight or nine years of this century were really just playing out old trends.
“We've got a different shopper now. Coming out of the recession, we are starting to move our attention away from the Baby Boomers and toward the younger generation.”
Marketing will require new tools. Data will be a prized commodity, and retailers and suppliers will need to work together in new ways to satisfy consumers who want answers at the touch of button.
The concept of marketing to the younger generations presents the single greatest challenge to the industry during the next decade, Rand says.
One of the places such marketing will show up is in-store digital marketing.
“It is one of the most important things the supplier and retailer can cooperate in learning how to do right now,” he says.
He expects that in-store shopping devices, such as the handheld scanners in testing at a few chains, will be replaced by an application that works on smartphones.
“However we work it, communicating with the shopper in the aisle, at the point of purchase, in a way that is much more personal and holistic, is probably one of the bigger trends that we ought to grapple with in the next decade,” he says.
This converges with other trends, he explains, including the increasing demand for information on packaging about nutrition and dietary concerns that manufacturers are unable to accommodate.
He expects shoppers eventually will simply point their phones at a bar code to access a wealth of information about allergens, calories and other dietary concerns.
In addition, he says, comparing prices at various retailers while shopping in a store and gaining access to product recommendations and reviews from peers will become much more commonplace.
Neil Stern, senior partner at McMillan Doolittle, Chicago, says he expects to see a continued fragmentation of food shopping over the next 10 years.
“We've already seen a lot of fragmentation over the last 10 years with supercenters, clubs and dollar stores, and that trend will continue with even more fragmentation coming in at least three ways.
“First, there will be more ethnic fragmentation, and the demographics of the U.S. will feed into this trend. We're in the middle now of laying the groundwork for expanded ethnic-themed markets, whether Hispanic or Asian, but right now no one has anything beyond a small footprint.”
Over the next decade, however, Stern expects the industry will see the emergence of chains pursuing ethnic markets “on a full scale.”
In addition, he expects growth in discount retailing, including hard discounters like Aldi and Save-A-Lot.
He also expects a small-format, convenience-oriented supermarket format to emerge.
“The shopper's mission is fragmenting. We used to have the notion of a housewife doing her weekly grocery shopping in a store organized to meet all her needs. For years, stores were separated by specialty departments, but going forward, they will be designed to accommodate different shopping missions.”
Jim Hertel, managing partner at Willard Bishop, Barrington, Ill., agreed that changes in the industry during the next decade will drive increasing diversity among consumers, “with the rich getting richer, the middle class declining and the country becoming more ethnic.
“If one size didn't fit all before, it really won't in 2020,” he adds.
Hertel also predicts that small-format value retailing will be a big winner by the end of the decade.
“Supermarkets will get small formats right,” he says. “Most won't be like Fresh & Easy but more like Aldi, Save-A-Lot and PriceRite, with a strong value emphasis, strong store-brand orientation and a neighborhood focus, catering to Hispanics, African Americans and other ethnic groups, especially in perishables.”
Hertel also predicts store brands will reach 35 percent of dollar sales and 45 percent to 50 percent of unit sales — double the unit sales of today — “and retailers will become leaders in innovation rather than fast followers,” he adds.
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The pressure to get more productivity out of existing stores also will add pressure to the supplier-retailer dynamic, Rand says.
“We are starting to see that happening with SKU optimization and reduction, and we've seen it for years with transfer of costs to vendor partners, and we see it with format experimentation,” he says. “Retailers want to make more money from new formats, and from assets they already own.”
David Rogers, principal at DSR Marketing Systems, Deerfield, Ill., agreed that food shopping will be influenced not only by the growth of the Asian and Hispanic populations and by the aging of the Anglo population, “but also by the future course of gas prices and economic recovery from the ‘Great Recession.’”
Tepid economic recovery
“My best guess is that the economic recovery will be tepid because of the deficits and the continuing housing problems, and that price and value will remain the dominant drivers affecting shopping behavior,” he says. “This scenario favors private brands, dollar and limited-assortment stores, which could morph together, as well as supercenters and price-focused supermarkets.”
He expects the trend toward smaller store size will continue for several reasons, including excessive competitive floor space, development costs and the aging of the population.
Gary Giblen, executive vice president, Quint-Miller & Co., New York, also agreed that pricing will become increasingly important by 2020.
Consumers will be looking for “price-value relationships,” he says. “They won't be interested in cheap food, but in getting good value for the dollar — that's what people will respond to.”
Jonathan Ziegler, principal, PUPS Investment Management, Santa Barbara, Calif., expects to see major changes in product packaging by 2020, with shelf space being used more efficiently, packages designed for more efficient transportation, and more biodegradable packaging.
Stores will move toward more productive replenishment systems, such as gravity-fed restocking systems.
“We'll see more use of just-in-time deliveries, with more pay-on-scan, where vendors will own the merchandise until it is scanned and sold,” he projects. “The advantage for vendors is they won't have to deal with receivables when they deliver, but because it remains their product, they will be able to co