Fast. Food. Service
Fast. Food. To-Go. These aren’t the words you’d typically associate with your traditional grocer. And strung together, they mean something altogether quite different. But then we aren’t talking about traditional grocers or efficient food service in McDonald’s here. Spurred by fast shifting customer behaviour and competition, grocers are under pressure to quickly re-think and diversify their core offering in traditional grocery to a different type of offering – Food-To-Go. We’re talking a shift from just ‘products on shelves’ to in-store cafes and dining; from large shopping baskets to ‘eat as you go’. You get the picture. But what are the implications of this trend on the traditional grocer structure, and how fit is it for the future?
Trending: Fast changing shopping behaviour
Let’s break it down. ’Fast’ – pace of life, time pressures and digital advancement mean today’s customers want, nay expect, convenience and food, literally at the click of a button. The advent of online food delivery through the likes of Deliveroo and the UberEats app, alongside food markets and ‘pop ups’ at every turn, mean customers are swapping their large weekly grocery shop and home cooking for restaurant level home delivery and ‘grab and go’ convenience. The hard facts and stats are hard to ignore here; driven by these changing shopper lifestyles, IGD is anticipating the food-to-go market to be worth £16.1bn in 2016, up by 6.8% from 2015, whilst sales in supermarket have steadily declined in recent years; by 2021, core grocery supermarkets are estimated to grow by a miniscule 0.8% when compared to the convenience sector which sees a likely growth rate of 11.7% and online a whopping 68.3%. Not to be outdone, supermarkets and hypermarkets have been trialling new formats and ideas in-store, moving food-to-go beyond the traditional sandwich, snack and drink deal.
‘Food’ – we’re not talking just food products but food freshly prepared in store, and the expectation from customer of a one-stop shop experience and food on the go.
‘To-Go’ – we mean not only the food-to-go offering but the implications this proposition will have on customer service; these changes will place demands on the capabilities of store employees who will increasingly be required to not just stack shelves and serve customers at the till but broaden their knowledge about the food market and serve freshly prepared food to eat in or take away.
Put these three components together and you have quite a different customer proposition from today.
Leading the way amongst the British grocers is M&S Food. With its in-store cafes serving up hot M&S Food, it has raised what customers now expect of their in store experience. Unsurprisingly the trend has caught on. From Tesco Burrito Bars to Waitrose Wine Bars, the model of your traditional British grocer is increasingly looking more akin to those of our cousin’s across the pond – where the likes of Whole Foods offers the ‘whole experience’ for the ‘foodie’ in store. Bring on Dean & Deluca - the high-end American grocer’s is set to make its mark with its new opening in Mayfair early next year, followed by an expansion plan to serve UK with fine gourmet food. Catering to today’s local and international consumers who can’t get enough of new concepts, their debut is a sure sign of the change in what we have and will increasingly come to expect of typical grocers.
But what are the implications of this trend on the traditional grocer organisation, and how fit is it for the future?
First principles: as a starting point, let’s consider the top 3 characteristics that may facilitate a re-think of the grocer structure in light of diversifying from the core grocery offer.
1. Nimble to be ‘fast’: does the current structure allow speed to market of new offerings and the ability to be ‘fleet of foot’ in response to changes in shopper behaviour?
There are some areas to consider here – firstly a review of the degree of complexity in the current structure and identifying ways to simplify it is essential. Apart from absolute clarity in roles, accountabilities, decision-making rights and performance measures, commonality in the structure across the business is critical; the more consistency there is, the easier it will be for activities in the value chain to flow from one to the other, and ultimately make taking the new customer offer to market quick and seamless.
Equally, sophisticated insight and analytics capability will enable grocers to respond in an agile way to fast changing shopping behaviours. Of course the insights in themselves are of little value unless they result in an action that produces a commercial outcome – ideally a profitable one. So to be ‘fleet of foot’, it’s vital for grocers to be able to turn insight into action quickly – this could include leveraging data and insights to inform the most profitable marketing campaign or promotion for the new proposition based on analysing the return on investment of different campaigns. It also requires analysing cost to serve in supply chain to evaluate the profitability of taking the new offering to market, which could well be costly for food-to-go, and therefore balancing this with the best pricing strategies and price positioning through modelling can help ensure a profitable return.
Where grocers may have overlayed this insight with further customer data to support decisions on product range and space, the growth of food services and online channel mean that decisions about maximising space in store may be less about products per se but about the balance of space between food services versus products, and the perennial debate on how best to maximise space with product ranges may take a back seat as demand for online and food services surge.
2. Innovative to reinvent new propositions in food-to-go: does the current structure offer room for the identification, testing and creation of innovative revenue streams?
Traditionally, the mainstay of consumer products and manufacturing sectors, capability in innovation will become increasingly vital for grocery players in order to be a ‘first mover’, keep ahead of the competition, respond to changes in shopping behaviour as well as shape future customer demand through the creation of innovative customer propositions and target areas for growth.
It’s important to distinguish innovation that is ‘out of the box’ transformational change, from improvement or incremental enhancements to something that already exists. Another key feature of innovation is that it must create commercial value, that is, goods or services for which customers are willing to pay.
Notwithstanding investment into expertise in innovation itself, other supporting capabilities include insight and analytics capability discussed above, which is particularly vital in the early stages of innovation when the identification of innovative areas of revenue growth will be shaped by macro and micro trends, customer behaviour, strategic analysis and functional insights. Equally, leveraging digital capability in innovation will open up avenues for transforming customer experience across all channels.
Once you have decided to invest in these capabilities, how do you best organise them in the business? Here, the ‘start-up’ model of nurturing a new business idea until it is ready for expansion can be appropriate. This could take the shape of an ‘Innovation Centre’ for example, run as a dedicated team with its own lead to provide oversight, and served by its own capabilities such as branding, pricing, packaging and distribution. There is much to be gained by centralising these capabilities together or housing them in close proximity in the centre –this will enable insights, analytics and digital capabilities to be effectively leveraged by Innovation experts, and it allows for a more strategic, cross-functional, business wide perspective in decision-making, than one that may be silo-ed. It also enables the rest of the business to focus on the running of ‘business as usual’ activities without being distracted.
3. Scalable to grow new propositions: does the current structure support growth of new and existing offerings, and the capacity to readily flex to changes in the market?
The traditional function-led structure adopted by most grocers thus far may have served them well, but what of the need to scale the innovative proposition once it sees positive sales growth? A purely function-led structure may enable growth but it will do so to some degree and at a constrained pace. In this respect, the grocer may want to consider a category or channel led structure, with full profit and loss accountability. These options would give the new proposition sufficient importance and attention in order to grow and achieve its profitability targets within the desired time-scales.
Likewise, retailers should explore more collaborative business models by working closely with consumer products companies and the food service industry to share capabilities for example in data and insights, ranging decisions, advertising and marketing, and digital platforms, to enable greater agility and scalability.
So the shape of the traditional grocer as we know it may well be unrecognisable in the not too distant future. Watch this space.