The Three Battles for Grocery Shoppers
European Retailing in the Week Ahead – Week # 20, 2016
At Kantar Retail we start with a simple formula in forecasting retailer performance. That formula is not very sophisticated nor new but it goes a long way in explaining why retailers behave the way they do.
Here it is:
Retail Sales = # Shoppers x Average Frequency x Total Basket
When trying to interpret why retailers are acting the way they do in 2016 it is important to understand that each one of these elements has come under attack from disruptive business models. Let me explain:
- # Shoppers. Historically, the number of shoppers a grocery retailer could attract was driven by two factors. First, and typically very important, was a good location. It is important to note that a good location could depend on whether the shopper had a car or a bicycle, took public transport, or walked. The second factor was competition – when shoppers are given choice in grocery they tend to shop around and divide their loyalties.
- Average Frequency. Average frequency is the area where many grocery retailers spend most of their marketing monies and rely heavily on suppliers to help develop “52 week plans” for promotional activities, new product introductions, and in-store activations. The goal, in the modern trade, was to drive weekend ‘stock up shopping’ so that it develops into a family routine. Modern trade grocers used to love to hear women describe their Saturday morning as, “We wake up as a family, get some breakfast, and then head to the superstore”.
- Total Basket. Finally, building basket through modern category management science, frequent planograming improvements, superior store design, and staff training designed to minimize shrink, out-of-stocks, and abandoned baskets has often been the hallmark of ‘retail excellence’ and where most grocery manufacturers invest over 80% of their time and money.
The Three Battles in Post-Modern Markets
At Kantar Retail we have also frequently used the “Market Evolution Model” to help manufacturers understand which activities they will need to develop across different countries or regions within a country. Using the model, we plot all countries of the world on a continuum with a look five years out to see where they are headed. Will they become more modern? Will they become more competitive?
This model has withstood the test of time. We continue to help suppliers understand when a market will go from the ‘penetration’ phase of modern trade development to the ‘maturation’ phase of development. The model ‘ends’ with the “Post-Modern Phase” of development where modern trade is over 85% of all retail activity and the Top Five retailers have more than 60% total retail market share.
As we look to the next five years, using the Market Evolution Model, the Post-Modern markets all appear to have two things in common. The Top Five are losing market share/will lose market share and the traditional trade (small independent traders, farmers markets, home gardening, etc) is gaining share as a source of grocery consumption/grocery purchasing.
This state of affairs is causing panic among most modern trade grocery retailers but has not resulted in as much alarm among FMCG/CPG suppliers. Hopefully, this will change. Perhaps the best way to develop the right steps toward change is to focus on the three battles ahead.
- The first battle: BASKET. Deflation and low levels of inflation look like they are here to stay for the next two to three years. This means that the only way for retailers to increase basket is to get them to buy in higher volumes (instead of buying 500 grams of asparagus why not buy a kilogram?) or to buy into more categories (while buying your asparagus wouldn’t you also like a bottle of wine?). When combined with low levels of consumer confidence, rising property prices and growing expenses in other parts of household budgets, the result is that this is a battle that very few grocery retailers are going to win over the long-term. Suppliers that continue to spend over 90% of their time and money on activities that are designed to increase volumes may be headed in the wrong direction, at least over the next 18 month planning cycle.
- The second battle: Frequency. Discounters and proximity retail solutions are taking a bite into the ‘Saturday morning shopping routine’. Discounters have convinced many shoppers that the can get better deals and faster shopping done if they visit discounter shops on weekdays. Proximity stores have made it easy to shop on the ‘way home from work’ at the same retailer and same price as can be found by visiting the superstore. Suppliers looking to help grocers ‘defend’ their share should rightly double-down on initiatives designed to help retailers maintain weekly routines.
- The third battle. # Shoppers. Shoppers have started to go away from “mass” patterns of shopping and have started to visit the types of retailers that help them express their individuality or culture. This results in more shoppers going to small independent shops that have unique character, going to automatic replenishment business models, or building eCommerce platforms that automatically link what they buy (and more often what they cook) to social media such as Instagram or Facebook. The goal of the modern grocery shopper is to find something unique, or make something unique, and then share it with the world on social media. Suppliers looking to help grocers ‘fight’ this battle should invest more energy than ever in this area as suppliers understand individuals much better than retailers do. Suppliers typically have ‘360 understanding’ of their loyal consumers where retailers only understand consumers when they are visiting stores.
Looking ahead to 2017 planning, we at Kantar Retail hope you will think carefully about the three battles of grocery retailing and invest wisely in developing strategies to help retailers grow sales that will result in better shopper activation. We look forward to hearing your ‘war’ stories.
Please keep in touch via email or Twitter by telling us what you want to hear about next week or in the weeks ahead.
Warm regards,
Ray Gaul
Email: Ray.Gaul@KantarRetail.com, Twitter: @RayGaul
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