January 18, 2019

Food Retail Outlook for 2019 from Retail Leader

From Retail Leader By Mike Troy – 01/11/2019  See the Story on Retail Leaders here.

Food retailing is the last sector of retail to experience digital disruption, but the industry is making up for lost time. Since Amazon’s acquisition of Whole Foods in Aug. 2017 there has been a flurry of activity with all sort of innovation, acquisitions and new initiatives. Here’s five ways food retailing will change in 2019.

ONE: The share of stomach mindset: As food retailers continue to reimagine what it means to be a food retailer, more will embrace the “share of stomach” mentality. Consumers now have unlimited ways to satisfy their hunger and the lines between food at home and food away from home have blurred, leading to new competitive pressures, different competitive sets and more pressure on trips.

Traditional supermarkets can win the share of stomach battle by more effectively leveraging their in-store food preparation capabilities and actively promoting home delivery of prepared foods. Doing so will enable them to win meal occasions from food service operators who food oftentimes isn’t as well-prepared as that offered by industry leaders such as Whole Foods, Wegmans, The Fresh Market and Sprouts.

TWO: Eating by attribute: Personalization is hot trend throughout retail and it will have a big impact on food retailing. Niche diets based on lifestyle, fads, medical condition, social concerns and allergies, coupled with a general desire for ingredient transparency, is causing huge shifts in shopper behavior. Fortunately, retailers have gained the needed technological sophistication and data partners to power new merchandising approaches in store and online that speak to evolving shopper segments.

THREE: Automation for expense control: Food retailers are perpetually challenged to control expenses and that won’t change in 2019. In fact, it becomes more challenging as retailers serve shoppers in new ways with click and collect gaining popularity and retailers struggling to pick merchandise from stores that aren’t optimized to serve as fulfillment centers with wages on the rise. The increased use of automation promises to have a big impact this year and beyond. That’s why the retail world will be watching closely this month when Walmart begins experimenting with its Alphabot technology at a 20,000-sq.-ft. addition to a supercenter in Salem, NH. Alphabots pick merchandise and bring it to collection points for click and collect customers without the need for human intervention, resulting in potentially huge labor savings if spread across the company. Meanwhile, Kroger is moving forward with its relationship with U.K. online retailer Ocado with the first of its highly automated grocery picking facilities, a 335,000-sq.-ft. facility near Cincinnati, opening in 2021. Twenty such facilities are planned over time which clearly indicates where Kroger is placing its bets on shopper preferences.

FOUR: Store experience vs. Shopper convenience: Physical stores will still matter, something that is often repeated, but the pendulum has swung toward convenience which is why every retailer on the planet is focused on eliminating friction everywhere on the path to purchase. This trend was evident before the advent of the Amazon Go cashierless stores, but the ability to just walk out has set a new shopper expectation. Beyond effortless payments, convenience is all about format size and channel. The convenience store channel is placing a tremendous emphasis on fresh and prepared foods as a growth driver. Meanwhile, smaller format stores are the fastest growing segment of food retail. Think Aldi with it goal of operating 2,500 stores by 2022 and Lidl, which appears to be regaining its footing with a new CEO in place. Then there are the value players, Dollar General, Dollar Tree, Family Dollar and 99 Cents Only, whose increased emphasis on grocery has a collective impact on traditional supermarkets overall.

FIVE: Home delivery vs. click and collect: Click and collect has rolled out rapidly because customer love it. Over time, and this will become evident in 2019, delivery will gain traction. That’s due to even greater convenience since click and collect does still require a trip to a physical location. It won’t happen overnight, but as leading provider Instacart has noted, food retailing is a $1 trillion industry and online penetration is only 5%. Speaking of Instacart, the company hasn’t had any issue raising cash to fund its growth, but it has indicated it will eventually go public and that could happen this year. One thing Instacast will have to be wary of is the fact that its whole crowdsourced-based business model has the potential to be disrupted by autonomous delivery vehicles, an area of great experimentation with tremendous potential for longer-term disruption.

Thank you for your insights Mike Troy.   See the Story on Retail Leaders here.