The Rise of New Retail Models

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The Rise of New Retail Models

By David Diamond - 01/25/2017

A variety of entrepreneurs have taken credit for the invention of the supermarket in the late 1920’s and early 1930’s. I will let the various historians and marketers stake their claims (for the record, the FMI recognizes Michael Cullen’s first King Kullen store in Queens, New York in 1930 as the first supermarket, but others, using different criteria, disagree), but what seems clear is that the combined pressures of modernization and the great depression moved retailers to move from a high-service, goods behind the counter environment to a more diverse, self-service model. By the end of World War II the self-service model had established itself and become the standard approach for modern retailers.

The remarkable thing is how durable this model has been. While it is true that much changed in the retail world between 1945 and 2005, the essential model of each store becoming larger and more self-service continued unabated. Over that 60-year period stores became bigger, came to include more categories, and asked their customers to do more and more of the work, all in exchange for offering a greater variety of products and significantly lower prices. These trade-offs were generally quite appealing to consumers, who liked the convenience of one-stop shopping and loved the significantly lower prices offered by stores as they grew in size.

But starting around the turn of the last century, a variety of changes started to change the retail model in very fundamental ways. And for the first time in many years, we are now looking at changes in the retail landscape, which not only build on the current model, but also undermine it in certain ways. I recently spent some time at the NRF trade show in New York City, and was struck at how some of the proposed new products for retailers didn’t just move the process of innovation forward but actually changed its direction.

An important place to begin this discussion is to recognize the reappearance of smaller, more specialized stores. Across the country, one-stop shopping is beginning to fade, as shoppers supplement their primary supermarket shopping with visits to the Farmer’s Market, the local Butcher and other specialty stores. In the last 20 years, the momentum has shifted away from the consolidation of all departments into the giant mega-store and towards the appreciation of the value of specialists -- great farmers, butchers, bakers and artisanal craftspeople of all kinds. I may still go to the supermarket or super-center for canned tuna and laundry soap, but I may look elsewhere for homemade bread and local seafood.

Return of Specialty Stores

However, this return of specialty stores is just the beginning. Once consumers begin to look beyond the mega-store for everything, many options arise, and the advent of e-commerce plays neatly into this instinct. It has taken a long time for e-commerce to make significant inroads into the grocery business, but that dam seems about to break in a number of ways.

First, the two biggest issues related to “internet groceries” are very effectively solved by the “click and collect” model now becoming popular. Since the first manifestations of online groceries in the mid-1990s, the two biggest hurdles to mass success have been the cost of home delivery and the desire of consumers to select certain goods themselves. They may trust their grocer to select Pepsi, but they want to pick out their own steaks. Click and collect solves both of these problems. The customer pick-up greatly reduces the costs while allowing the consumer to reserve a few items for self-selection. It appears that this model has some real momentum and could be the long awaited way to make Internet grocery ordering a mainstream activity.

Beyond click and collect, there are a variety of other new, technology driven approaches, which leverage both technology, and the emerging willingness of shoppers to buy different things in different places. Foremost among these is Amazon Subscribe and Save, which allows the consumer to identify the few items they know that they want every month, and “subscribe” to them at a discounted rate. I have done this for about six items, and I have become a real believer in the approach, especially for hard-to-find items.

At the NRF show, I saw an even newer technology, being offered by a company called SmartCommerce, which allows product manufacturers to embed in their ads a click through button, which directly deposits the advertised product into the shopping cart of the consumer on the consumer’s preferred e-commerce site, cutting about three steps out of the ordering process. It is another approach that serves to drive consumers away from “one-stop” shopping and toward “best of breed” shopping, by product and by category.

New Definition of 'Progress'

And this is all just a sampling of all of the various new ways of shopping. The point is not to discuss them all, but rather to comment on the reality that the definition of “progress” has really changed.

From 1945 until about 1995, “progress” in retail could be measured along a straight line from small stores to big stores, from smaller assortments to larger ones, from fewer departments and categories to more departments and categories. From the first King Kullen to the latest Walmart Supercenter, progress has manifested itself in far more diverse ways, including new stores, specialized stores, web-based stores and hybrid retail models.

The critical take-away is that not only does retail continue to evolve, but that this evolution has become a more diverse, disorganized process.