Envision the Future
Omnichannel trends have become the “burning platform” for our industry. These trends are having a major impact across channels, with recent headlines providing powerful examples: “Shoppers Flock to Online Merchants,” “Walmart to Close 269 Stores,” “Retailers Struggle.”
To win over the next five years, suppliers and retailers must address significant, continuous changes in our business environment.
Changes — including new shopper purchase/delivery options, information sources, preferences for Millennials and others, and blurring of channels, including retail/e-tail — are redefining “requirements for success,” as noted by 91 percent of retailers and 95 percent of suppliers in an industry-wide study.
This study, dubbed “Envision,” is uniquely designed to help navigate these changes, with a broad scope and key elements as follows:
- ➤ Total store focus, not just perimeter or selected departments
- ➤ All tactics, not just technology or other elements
- ➤ Physical/virtual recognition that shoppers operate in both worlds
- ➤ Actionability near and longer term, not just generalized or incomplete solutions
- ➤ Ongoing focus and current: The study will be regularly updated to reflect the continuous pace of change, with deep dives in key areas with future releases
Significant New Challenges
Market changes are creating entirely new challenges and an unprecedented demand for new thinking and solutions.
“Brick-and-mortar retailers need to come up with a better proposition to lure shoppers into their stores,” Chicago-based business consultantcy Alix Partners told The New York Times. “‘Stack it high and let it fly’ doesn’t work anymore. They have to figure out how to make shopping fun again.”
The first of these challenges is Differentiation and Relevance. Expanding shopper options — for meal solutions, health and beauty, pet, and other categories — are a major source of competition, especially with Millennials. Up to one-third of all shoppers and almost half of Millennials, shop in specialty stores, and online creates further challenges.
These options are changing requirements for success well beyond conventional metrics.
“We traditionally look at market basket and traffic,” said one retailer responding to our survey, “but our more fundamental need is differentiation and relevance in a world with more options in conventional channels, foodservice, specialty stores and online.”
A second major challenge is Physical/Virtual Balance. Is the physical store seen by shoppers, and Millennials in particular, as relevant five years from now? The answer is yes, but with a caveat: The physical store must elevate its game.
First, the good news: Shoppers, and Millennials specifically, note that online shopping will grow over the next five years, but the physical store will continue to play a major role for shopping and pickup.
Retailers and suppliers agree that the physical store and virtual shopping need to work together to create an experience greater than the sum of their parts.
“The fact is, shoppers want both options — physical and virtual — and the ability to move between them,” another retailer responded.
Now the caveat: The physical store must link to virtual shopping options, but in so doing must not diminish focus against the first challenge — differentiation, relevance, and ability of the physical store to attract and excite shoppers. As one retailer put it, “Focus on the physical store in an omnichannel environment is critical to our long-term survival.”
A supplier in the food industry reported, “We are seeing and projecting huge growth in online, but even by 2020, this will only be 3 percent of our sales.”
Higher-level Strategy Needed
Category management has played a key role for decades and will continue to do so, but today there is also need for an approach above this: to address the higher-level need states of shoppers and total-store needs of retailers.
Specifically, shopper need states aren’t confined by traditional category boundaries. For retailers, a gap exists between solutions developed across 150-plus categories and their need to prioritize and integrate these into a unified whole to excite and engage shoppers, and thereby differentiate their overall operations.
Suppliers and retailers both recognize there are limitations to category management for future shopper and store management needs.
“Category management is important, but it’s the price of entry, and by definition is more limited in scope and the kind of solutions it can provide,” a retailer responded. “You can’t win with this.”
This higher-level shopper/store approach impacts the type and depth of insights that are developed, as well as the application of these insights.
While virtually all suppliers today have shopper insights, retailers express the need for broader business insights that are developed to more fully address both shopper and store needs.
“Just like category management is category-centric, many of the supplier insights and solutions we see fall within the same boundaries,” said one retailer, “and, when they get beyond the immediate aisle, often lack real substance.”
In addition to deeper and more developed insights, there’s a need for applications that identify “white space” beyond category definitions, in terms of shopper need states and also retail execution.
“We need techniques that address opportunities for both product and retail innovation,” another retailer said. “We see a lot of focus on the first, but the second is equally critical to more effectively engage with shoppers.”
Need a Broader Set of Tactics
The 4Ps — product, price, placement and promotion — continue to be a foundation for managing categories. However, winning in today’s environment demands more, given the following:
- ➤ Blurring of channels, both physical and virtual
- ➤ Need to focus on not just consumer needs, but also shopper needs, and retailers need to address these in a compelling way
- ➤ A major shift in the industry’s perceived “moment of truth,” from when a shopper is in front of a shelf containing products to a much earlier point when the shopper is considering which channel/retailer to shop
“The 4Ps are important, but if that’s the extent of what we focus on as retail tactics, we’ll soon follow others into Chapter 11,” a retailer remarked.
While the 4Ps continue to address key basics, the 2Es are critical today as differentiators — to excite and engage shoppers, and address the retailer need for a differentiated image and relevance.
- ➤ Excitement: When shoppers walk by a section of the store, does it create a “wow”? An emotional connection? Does it make them need to enter and check it out? Does it provide a compelling alternative to specialty outlets?
- ➤ Engagement: While the 4P tactic of promotion focuses on communication to the shopper, engagement focuses on dialogue originating from the shopper. To compete with restaurant takeout, for example, where shoppers often use a mobile device to call ahead, is the same option available for your prepared food section? With other sections of the store, is there opportunity for dialogue before, in and after the store?
The 2Es respond to significant shopper needs. Consider the following: Only 50 percent of shoppers indicated that they’re “fully or pretty loyal” to their primary grocery store”; only 51 percent said that they have “high or somewhat high enjoyment” in the shopping experience; 41 percent said that it’s “not organized to the way I shop”; and 30 percent said, “I don’t think they focus on shopper needs when organizing products.”
The 2Es have the potential to change the game. The “treasure hunt” of club stores and the “fun/excitement” in many specialty stores, noted in many studies, provide a helpful reference point. In our study, more than three-quarters of shoppers indicated that they’d be very/somewhat likely to shift purchasing “back” to their regular store if offered a more engaging shopping experience.
Revisiting Industry Truths
In a very different business environment, it’s also instructive to revisit industry “truths” in two areas.
The first is perceptions of perimeter and center store. The perimeter has unique elements (e.g., fresh), but also several others that can be broadly applied, such as integration of categories, visual appeal, information/news, “stations,” and more.
As one retailer put it, “If we look at perimeter and center as totally unique, we’ll keep trying to solve center store problems with center store tactics.”
The second is perception of a “common look across the store.”
“Common look can be more weakness than strength,” another retailer asserted. “Why should the pet aisle look the same as household cleaning or snacks or HBC? These sections need to connect with shoppers, not just provide products. A pet is a family member. Beverages provide purity, variety, enjoyment. OTC meets treatment and preventive needs.”
Creating a more exciting, engaging retail experience must take a broader approach than trying to solve center store problems with center store tactics, or maintaining a common look across the store.
Opportunity: A Case Study
Before we look at applying key learning from this study, we should begin with a current case study to illustrate certain opportunities.
The example we’ll use is a top-five grocery retailer, but observations and implications also apply to other channels. The store has a typical perimeter, and the center store has 24 aisles. There’s a numbered sign at the end of each aisle that also lists seven to eight product types found in that aisle, or almost 200 categories. The signs are the same shape and color, and the aisles generally use the same fixturing and other elements.
Certain product types (e.g., beverages) occupy three entire aisles, but aren’t next to one another.
Other product types (e.g., HBC, pet, GM) are typically their own aisles. End aisle displays are used, often for DSD items; these items typically don’t align with the product types stocked in the aisles adjacent to them.
Taking Action: A Detailed Approach
The study identifies four major steps for taking action. These can be used to create a “practical revolution,” both near and longer term. A practical revolution creates noticeable change/improvement without significant near-term investment, and without significant change in established consumer/shopper behavior.
Step 1: Identify Shopper Business Units (SBUs) for Your Stores
This begins by consolidating your store into a manageable number of “shopper-defined business units” (SBUs) — or destinations or need states — that shoppers can easily identify with and understand, and that align with your store differentiation strategies.
In our case study example, the 24 aisle signs could be consolidated into, say, 12 major sections: beverages, snacks/condiments, canned/packaged, breakfast, GM, baby/family, reading, HBC, household products, paper goods and frozen.
The key point isn’t the number or even the names of these, but the fact that they can be done over time or in phases, often building upon layouts that largely exist already.
“Building on principles that have made for perimeter success, we’re extending this to an initial six areas in center store, with great reception,” the retailer explained. “The goal is to turn center store into engaging sections shoppers can easily relate to, rather than just a big ‘all other’ department called center store.”
This can often be done with minimal to no meaningful disruption to shoppers who know where to find a specific product; longer-term change can be pursued as appropriate.
“An important point is, we need to figure out a total-store strategy versus having isolated initiatives from various suppliers or departments that may overlap or contradict or not fit together into a cohesive whole that’s logical, develops synergies and is inviting to the shopper,” the retailer said.
Step 2: Create Excitement Within Each SBU — The 1st Of The 2Es
The focus in this step is to create strong excitement, a “wow” factor, within each SBU — to make each a compelling destination where shoppers want to shop.
This can begin with distinctive aisle signs using pictures. Lists of product types, and even numbers, can still be included, and some SBUs (e.g., beverages, HBC) may be more than one aisle.
“The goal needs to be to make the entire store amenable to more ‘intuitive shopping,’” the retailer noted.
Use of end aisles can highlight key products or new/emerging segments.
Focus should be on key physical/emotional needs, not just products lined up on shelf — for example, greater attention in OTC not just to treatment, but also prevention, a growing priority.
Each SBU should compete at or above standards of specialty outlets (in pet, beauty, bakery, GM, candy, beverages, etc.) that represent a key shopper “standard” and source of business.
Other elements — flooring, colors, and more over time — can create a personality and excitement within each SBU that makes shoppers want to visit.
Step 3: Incorporate the Full Set of Retail Tactics and Shopper Engagement With the 2nd Of The 2Es
This step brings to life the 4Ps that have been the focus of conventional category/retail management for decades, and the second of the 2Es: engagement.
With SBUs — as opposed to solo categories — there are greater critical mass and opportunity to incorporate more impactful merchandising, in-store services, staffing and other elements to build engagement into the shopping experience.
Social media apps can also be aligned with individual SBUs rather than, for example, having notices pop up on a shopper’s mobile device at random as they walk across and down various aisles. This alignment with social apps can provide two important benefits: further enhance shopper interest and involvement with each SBU, and provide simplicity and ease with the overall shopping trip.
Step 4: Examine Additional Potential Synergies Across SBUs
Importantly, this is Step 4, not Step 1. Many suppliers and retailers have used this as Step 1 as an extension of their category management efforts — for example, putting milk in the cereal aisle or various other ideas. However, this has resulted in several shortcomings, including insufficient variety and operational difficulties. Most crucially, it can result in one-off approaches in a handful of categories/brands, and never address the fundamental need to develop compelling SBUs and revitalize the total store.
Once Steps 1–3 have been addressed, this fourth step can add further value by considering shopper synergies from a total-store perspective not previously possible with conventional category boundaries and approaches.
Some examples: opportunities to increase the “home menu repertoire” of consumers for dinner or to provide more comprehensive “wellness solutions.” Several other possibilities can also be developed, and execution can include not only physical adjacencies in-store, but also more near-term options, including low-cost steps with signage, conventional ad format and social media communications, to name a few.
Address Process and Organization Structure as Key Enablers
When organizations seek to adapt to major changes in their business environments, process and organization structure can enable — or hinder — these efforts.
In today’s emerging omnichannel world, the need to address process and structure is particularly pronounced. In fact, when suppliers and retailers were asked to review several elements to improve shoppers’ experience, both groups indicated significant gaps between “importance” and “delivery” for their own organizations and businesses.
Process Needs
Process defines how “the (new) work of an organization gets done.” It plays a critical role in enabling market success, and it’s broadly recognized that “organizations deliver the exact results they are designed to deliver.” As such, our study has identified opportunities in two key areas.
The first is a need to broaden the work of the organization beyond category level in a meaningful way, versus just a “quick fix” that’s not fully part of how one goes to market.
“Too much is being done by ‘bolting on’ to current process, versus rethinking how we need to manage for success today and tomorrow,” one retailer remarked.
The second is to ensure that objectives and incentives at the top of an organization are consistent with those at lower levels. This may sound obvious, but retailers and suppliers noted multiple examples where these can be significantly out of sync.
Organization Structure Needs
Structure is related to process. Since most structures were developed decades ago with the introduction of brand/category management, a key need in today’s very different omnichannel environment is to revisit certain underlying principles of one’s structure.
With both retailers and suppliers, for example, structure must be able to align with the retailer’s need to prioritize 150-plus category solutions into a unified whole to excite/engage shoppers and create differentiation.
“Our company has to be willing and flexible to test and learn from solutions that will ultimately break the mold of traditional organization design,” a leading beverage supplier said.
Looking ahead, more than half of retailers expressed interest in a supplier role above category captain that could be aspired to, with a more strategic focus to consider broader shopper/store needs.
New Benchmarking Approach
Study respondents — suppliers and retailers —indicated that in a fundamentally different and ever-changing business environment, a different benchmarking approach is needed that provides deeper insights and greater actionability.
It was noted that current benchmarking tools, while helpful, focus on external perceptions and broad recommendations.
“Current rating systems are interesting,” a supplier observed, “but focus on general industry or overall observations, versus an in-depth understanding and assessment of my strategies and actions, specific to my organization.”
An expanded approach is needed, with focus on internal process, goals and capabilities.
“To truly understand what’s working and [what’s] not, and especially to develop actionable outputs that can improve our organization effectiveness, we need to address our internal processes,” a general merchandise supplier responded.
Actionability must then address organization-specific areas, including “knowledge estate,” research tools, innovation protocols and strategic selling platform. The goal is to build the bridge from who/where we are today to who/where we need to be tomorrow.
“Improvements in benchmarking would provide specific action steps, instead of broad efforts, to help drive changes required for a total-store approach,” the beverage supplier said.
Action Items: Retailers/Suppliers
➤ Create a capability above category management to address higher-level shopper and store needs; over time, this may also include a supplier role above category captain to support this higher-level focus.
➤ Review new product development protocols to enhance focus on market space opportunities outside conventional category definitions with shoppers and at retail.
➤ Identify SBUs and leverage a full range of tactics: 4Ps plus 2Es.
➤ Define a vision/roadmap to achieve newly defined goals; change the conversation and strategic focus from “perimeter/center store” to “integrate and engage across the total store.”
➤ Review your business process and organization structure to ensure alignment with new requirements for success.
➤ Consider a different benchmarking process — both qualitative and quantitative — to define your current state and measure progress.
Summary: What’s Next?
Future releases of “Envision” will build on the foundation this study has established, with deep dives in such areas as e-commerce best practices and brand/retail loyalty in an omnichannel world.
Key elements of the next release will be an update on continuous market changes/implications and a deep dive on e-commerce best practices for retailers and suppliers.
“The fact is, shoppers want both options — physical and virtual — and the ability to move between them.”
—Retailer
“Just like category management is category-centric, many of the supplier insights and solutions we see fall within the same boundaries, and, when they get beyond the immediate aisle, often lack real substance.”
—Retailer
Our company has to be willing and flexible to test and learn from solutions that will ultimately break the mold of traditional organization design.”
—Beverage supplier
Why should the pet aisle look the same as household cleaning or snacks or HBC? These sections need to connect with shoppers, not just provide products.”
—Retailer