Retailes: the Dutch Grocery Sector in 2030 1

RETAILes: The Dutch grocery sector in 2030 1

RETAILes The Dutch grocery sector in 2030

TALE 6: THE PURSUIT OF HEALTH 2 RETAILes: The Dutch grocery sector in 2030 RETAILes: The Dutch grocery sector in 2030 3

BACKGROUND

Roland Berger and EFMI Business School have recently industry survey in which 150 Dutch executives from conducted a joint study to gain insight into the future retailers, fresh food companies, brand- and private- of the Dutch grocery sector and to understand how the label manufacturers gave their views on the future of industry could transform itself over the next 10 to 15 the grocery sector. years within the context of a rapidly-changing world. In order to capture accurate insights from within the In a series of Retail Tales we aim to give an impression sector, we organized roundtable discussions with CEOs of what the industry could look like in 2030. Selected and senior management of a wide variety of players ac- focus areas include the future of the brick-and-mortar tive in the food and retail industry – both incumbent store, the impact of digitalization and the social im- companies and innovative newcomers. In addition to pact of developments. In this sixth tale we discuss the the insights gained from these roundtable discussions, pursuit of health in the grocery retail landscape. EFMI and Roland Berger conducted an in-depth food

In the study we propose to focus on 3 selected areas: Indevelopments this sixth talein brick-and-mortar, Roland Berger digitalization and EFMI Businessand social impact School will discuss Figure 3: To what extent do you find the following the pursuit of health in the grocery retail landscape statement applicable to the supermarket: "A supermarket that helps customers make healthy choices" (n=1,022) Figure 1: RETAILes: The Dutch grocery sector in 2030 … … 7.0 INTRO BRICK-AND-MORTAR DIGITALIZATION SOCIAL IMPACT

DEEN The grocery store of Online grocery Sustainable ALBERT HEIJN 0 1 the future 3 shopping supply chains 6.8 Introduction to RETAILes: The PLUS Dutch grocery sector in 2030 JAN LINDERS 6.6 Innovative in-store E-commerce The pursuit technology models of health HOOGVLIET JUMBO 2 6 COOP EMTE LIDL 6.4 DIRK Average score

6.2

6.0 Bubble size represents ALDI total value Figure 4: Health directions in grocery retail of online 0.0 FMCG sales

Note: The overview only shows the supermarket formulas that have been assessed by> 50 Product adaptation (in Prominent positioning respondents. Ekoplaza was assessed by only 28 respondents, but received a high score (8.25) 1 collaboration with suppliers) 4 of healthy products Source: EFMI Shopperonderzoek (2017) Reformulation of private-label Figure 3: Health directions in grocery retail Adjust store layout so products to reduce the amount that healthy products get of fat, sugar and/or salt a more prominent Working together with suppliers to position in the store develop healthier products (e.g. (more in front) products withouth sugar) Check-out lanes free of Remove products (e.g. like energy- confectionery and sugar- drink or tabacco) from supermarkets sweetened beverages Limits of amount of shelf Figure 2: The pursuit of health - Expected impact on Tranparant packaging space available for - and opportunity for retailers unhealthy products 2More transparent packaging – ingredients clearly stated, including 80% 85% nutrition info. (e.g. calories, salt, sugar, Prominent, well-stocked displays and promotion of healthier food fat, E-numbers etc.) items (e.g. vegetables, fruit, whole grain breads, lean meat etc.) "Friswijzer" to create awareness on Using celebrities or mascots as advocates of a healthier lifestyle calories and sugar of soft drinks (e.g. Fitboys/girls) or promoting sports activities/exercise (e.g. Pre-packaging of healthy food elements free vouchers to various activities at gyms) together (e.g. guacamole set, fresh soup Non-promotion of unhealthy products (e.g. energy drinks) The pursuit of health will have The pursuit of health is an a large impact on retailers opportunity for retailers or curries) 3 Promotion of healthier lifestyle through activities/advocates Source: EFMI and Roland Berger in-depth food industry survey of 150 executives (2018)

Source: Roland Berger analysis 4 RETAILes: The Dutch grocery sector in 2030

KEY TAKEAWAYS OF TALE 6: THE PURSUIT OF HEALTH • Consumer tastes are changing: the pursuit of health is now one of the top consumer trends in grocery retail • To capitalize on the health trend, grocery retailers can undertake initiatives like product adaptation (in collaboration with suppliers), transparent packaging, promotion of healthier lifestyles through activities/advocates or prominent positioning of healthy products • Globally, grocery stores take an active role in health promotions and organic products – new concepts like the US based Hy-Vee Health Market store are growing rapidly • Nordic countries are leading the way in understanding the importance of natural, sustainable lifestyles – Dutch grocery retailers that best guide and offer customers the healthiest choices can be the winner of tomorrow In the study we propose to focus on 3 selected areas: developments in brick-and-mortar, digitalization and social impact Figure 3: To what extent do you find the following statement applicable to the supermarket: "A supermarket that helps customers make healthy choices" (n=1,022) Figure 1: RETAILes: The Dutch grocery sector in 2030 … … 7.0 INTRO BRICK-AND-MORTAR DIGITALIZATION SOCIAL IMPACT

6.2

Consumer tastes are changing: the pursuit aspects of food are used interchangeably. For exam- of health is now one of the top consumer ple, the healthiness and safety of foods are often per- 6.0 Bubble size trends in grocery retail ceived as being the same thing, and both sustainablerepresents Changing consumer habits is one of the four me- and natural foods are often regardedALDI as healthy.total In value ad- Figure 4: Health directions in grocery retail ga-trends that will impact the grocery retail landscape. dition, terms ‘organic’ and ‘healthy’ are often ofused online in- FMCG sales In addition to an increased consumer focus on conveni- terchangeable,0.0 although they are in fact very different. ence, personalization and sustainability, health will play OrganicNote: The overview guarantees only shows thethat supermarket no toxic formulas synthetic that have been assessedpesticides, by> 50 Product adaptation (in Prominenta more prominent positioning role in consumer buying behavior. As toxicrespondents. synthetic Ekoplaza was assessed herbicides, by only 28 respondents, or chemical but received fertilizers a high score (8.25) are 1 collaboration with suppliers) 4 of such,healthy the productspursuit of health is listed as one of the top usedSource: EFMIin production,Shopperonderzoek (2017) and that no antibiotics or growth Reformulation of private-label Figure 3: Health directions in grocery retail Adjusttrends instore terms layout of impact so to the grocery retail sector. hormones are given to animals3. ‘Healthy’ food, on the products to reduce the amount that healthy products get other hand, should meet our daily needs for water, of fat, sugar and/or salt aThe more results prominent of the EFMI and Roland Berger in-depth fiber, fats, sugars, proteins, vitamins and minerals for industry survey indicate that consumers’ pursuit of the optimal functioning of the human body. Foods that Working together with suppliers to positionhealth will in thehave store a large impact on retailers (80% of do neither of these things are excluded from the Wheel develop healthier products (e.g. (morerespondents). in front)1 Furthermore, most respondents (85%) of Five, which is the practical information tool used products withouth sugar) Checkwere convinced-out lanes that free this of trend represents an oppor- by the Netherlands Nutrition Centre, to indicate food Remove products (e.g. like energy- confectionerytunity for retailers and when sugar acted- on accordingly (Figure groups that contribute to health benefits or that pro- drink or tabacco) from supermarkets sweetened2). By its very beverages nature, health is tied to grocery shop- Limitsping and of thereforeamount ofhas shelf always been a focus of markets Figure 2: The pursuit of health - Expected impact on and supermarkets. Today however, the theme of health Tranparant packaging space available for - and opportunity for retailers unhealthyhas taken center products stage and many are already develop- 2More transparent packaging – ing initiatives and strategies in the area of health. Still, ingredients clearly stated, including there remains potential for supermarkets in the Neth- 80% 85% Prominent, well-stocked displays and promotionerlands to of capitalizehealthier on food this trend. Between now and nutrition info. (e.g. calories, salt, sugar, 2030 we foresee that the topic will become even more fat, E-numbers etc.) items (e.g. vegetables, fruit, whole grain important.breads, lean Grocery meat retailers etc.) can take the opportunity "Friswijzer" to create awareness on Using celebrities or mascots as advocatesto ofdifferentiate a healthier lifestylethemselves and develop stronger (high- calories and sugar of soft drinks (e.g. Fitboys/girls) or promoting sports activities/exerciseer-profile) positions (e.g. on health. Pre-packaging of healthy food elements free vouchers to various activities at gyms) together (e.g. guacamole set, fresh soup Non-promotion of unhealthy products (e.g.But energy wat does drinks) ‘health’ in the landscape of food retail The pursuit of health will have The pursuit of health is an a large impact on retailers opportunity for retailers or curries) exactly entail? In general, many consumers do not dis- 3 Promotion of healthier lifestyle through activities/advocatestinguish between different aspects of food, such as healthiness, safety and sustainability2. These different Source: EFMI and Roland Berger in-depth food industry survey of 150 executives (2018)

Source: Roland Berger analysis

1 EFMI and Roland Berger in-depth food industry survey (2018) 2 National Institute for Public Health and the Environment (RIVM) 3 World Health Organization (2018) 6 RETAILes: The Dutch grocery sector in 2030

In the study we propose to focus on 3 selected areas: developments in brick-and-mortar, digitalization and social impact Figure 3: To what extent do you find the following have a basic understanding of nutrition (e.g. avoid ex- statement applicable to the supermarket: "A supermarket cessive saturated fats, sugar and salt). As such, retailers that helps customers make healthy choices" (n=1,022) provide more information on product heritage, product Figure 1: RETAILes: The Dutch grocery sector in 2030 … … 7.0 ingredients and transparency on “how healthy” a prod- INTRO BRICK-AND-MORTAR DIGITALIZATION SOCIAL IMPACT uct is to facilitate better consumer decision-making. For an increasing number of consumers, price alone is no DEEN The grocery store of Online grocery Sustainable ALBERT HEIJN longer the only purchase criteria; many are prepared to 0 1 the future 3 shopping supply chains 6.8 Introduction to pay more for products that deliver real value to them. RETAILes: The PLUS Dutch grocery sector in 2030 JAN LINDERS According to a survey conducted by EFMI, Albert Heijn 6.6 Innovative in-store E-commerce The pursuit is perceived as being the healthiest supermarket in the HOOGVLIET JUMBO technology models of health 4 2 6 COOP Netherlands by most respondents (Figure 3). Albert EMTE LIDL Heijn announced at the end of 2015 that it wanted to 6.4 become a healthier supermarket. To that end, the com- DIRK

Average score pany deployed multiple health initiatives ranging from campaigns to stimulate people to exercise (“Albert Hei- 6.2 jn Sportactie” in 2018 – free vouchers to various activities at gyms) and to enable customers to grow vegetables (through free “moestuintjes” in 2018 – various 6.0 Bubble size vegetable seeds integrated in peat, which can be grown represents by just adding water). ALDI total value Figure 4: Health directions in grocery retail of online 0.0 FMCG sales Although Ekoplaza received the highest average score

Note: The overview only shows the supermarket formulas that have been assessed by> 50 (8.25), it was only mentioned by less than 3% of the Product adaptation (in Prominent positioning respondents. Ekoplaza was assessed by only 28 respondents, but received a high score (8.25) respondents. Ekoplaza has initiated several health-re- 1 collaboration with suppliers) 4 of healthy products Source: EFMI Shopperonderzoek (2017) lated initiatives. Among others, Ekoplaza started to- Reformulation of private-label Figure 3: Health directions in grocery retail Adjust store layout so gether with other organic specialty shops a campaign products to reduce the amount that healthy products get vide essential nutrients. Nevertheless, organic products for 0% VAT on organic food – resulting in a petition to of fat, sugar and/or salt a more prominent can still be very sweet or salt. For example, alternative the House of Representatives. The involvement of Lidl Working together with suppliers to position in the store proteins need to be salted and flavored more heavily. in the health field and the fact that it outperforms Aldi, develop healthier products (e.g. (more in front) As such, organic does not necessarily mean healthy and its key competitor in the discount segment, is also re- products withouth sugar) Check-out lanes free of vice versa. markable. Lidl launched a campaign in 2017 focused on Remove products (e.g. like energy- confectionery and sugar- fruit and vegetables in collaboration with the National drink or tabacco) from supermarkets sweetened beverages Many grocery stores are already broadening their Vegetable and Fruit Action Plan (NAGF). As part of its Limits of amount of shelf productFigure 2: offeringThe pursuit ofwith health product - Expected lines impact that on appeal to health-conscious consumers. These health-conscious Tranparant packaging space available for - and opportunity for retailers unhealthy products consumers read the ingredients list and are likely to 4 EFMI (2017) 2More transparent packaging – ingredients clearly stated, including 80% 85% nutrition info. (e.g. calories, salt, sugar, Prominent, well-stocked displays and promotion of healthier food fat, E-numbers etc.) items (e.g. vegetables, fruit, whole grain breads, lean meat etc.) "Friswijzer" to create awareness on Using celebrities or mascots as advocates of a healthier lifestyle calories and sugar of soft drinks (e.g. Fitboys/girls) or promoting sports activities/exercise (e.g. Pre-packaging of healthy food elements free vouchers to various activities at gyms) together (e.g. guacamole set, fresh soup Non-promotion of unhealthy products (e.g. energy drinks) The pursuit of health will have The pursuit of health is an a large impact on retailers opportunity for retailers or curries) 3 Promotion of healthier lifestyle through activities/advocates Source: EFMI and Roland Berger in-depth food industry survey of 150 executives (2018)

Source: Roland Berger analysis RETAILes: The Dutch grocery sector in 2030 7 In the study we propose to focus on 3 selected areas: developments in brick-and-mortar, digitalization and social impact Figure 3: To what extent do you find the following statement applicable to the supermarket: "A supermarket that helps customers make healthy choices" (n=1,022) Figure 1: RETAILes: The Dutch grocery sector in 2030 … … 7.0 “freshINTRO and healthy”BRICK-AND-MORTAR campaign namedDIGITALIZATION ‘VitaMini’s’, theySOCIAL To IMPACT capitalize on the health trend, grocery DEEN aimed to highlightThe the grocery importance store of ofOnline healthy grocery nutritionSustainable retailers can undertake initiatives like ALBERT HEIJN in0 daily diets and1 the lifestyles. future Along3 withshopping the VitaMini’s, supply product chains adaptation (in collaboration with 6.8 Introduction to childrenRETAILes: The were also able to download the VitaMini app, suppliers), transparent packaging, PLUS Dutch grocery wheresector in 2030 they can learn more about fruit and vegetables in JAN LINDERS promotion of healthier lifestyles through 6.6 Innovative in-store E-commerce The pursuit a playful way. NAGF was responsible for all substantive HOOGVLIET JUMBO technology models of healthactivities/advocates or prominent information 2about fruit and vegetables. Lidl6 won the COOP positioning of healthy products EMTE LIDL prize again in 2018 (awarded by GfK5) for best fruit and 6.4 DIRK

vegetable department (in 2015 and 2016, Lidl was not There are several initiatives that grocery retailers can Average score the number one). launch to leverage the opportunities this health trend presents. These health directions on grocery retail are 6.2 categorized in four main buckets; Product, Packaging,

Promotion and Position (Figure 4). 6.0 Bubble size 5 Distrifood (2018) represents ALDI total value Figure 4: Health directions in grocery retail of online 0.0 FMCG sales

Source: Roland Berger analysis 8 RETAILes: The Dutch grocery sector in 2030

Several retailers are already deploying some of these sponding to the pursuit of health with sugar free and activities in recent years: completely vegan products (e.g. Alpro makes a non- dairy yoghurt now with fruit but no added sugar). Gro- 1. Product cery retailers can work closely together with suppliers Measures to restrict the sale of certain unhealthy prod- to stimulate these developments. ucts are already a fact. Aldi and Lidl are currently on its way to restrict the sale of energy drinks to people 2. Packaging aged 14 or older. Furthermore most grocery retailers Many consumers are unaware of what they eat, which are broadening their assortments with more organic or often results in unhealthy choices. Clear communica- locally-sourced products. For example, discounter Aldi tion about healthy and sustainable food on packaging has included regional products in some of their super- assists customers to manage their food choices and in- markets in certain areas of the Netherlands, like Over- spire them to eat healthier. Initiatives exemplifying this rijssel. Reformulation of (private-label) products to re- include more transparent packaging and explicitly stat- duce the amount of fat, sugar and/or salt is a profound ing ingredients on the label; in the UK, repeating nutri- initiative in response to the health trend. For example, tional information on the front of pre-packaged foods Albert Heijn took this important step in 2016, reducing and drinks is voluntary (under the Food Information salt content in several products under its private-label Regulation) but most of the major supermarkets and brand and also looked into removal of unnecessary many food manufacturers provide this. France is the E numbers. Furthermore, Lidl will be the first supermar- second country to recommend the Nutri-Score system, ket to stop selling cigarettes in the Netherlands. The a straightforward labelling system that uses color codes chain wants to phase out sales and by 2022 at the lat- to guide consumers at a glance on the nutritional value est, the parcels from all stores must have disappeared. of food products, marks an important achievement for Working together with suppliers to develop healthier nutrition in the WHO European Region6. Products des- products is the next step for retailers to adapt products; ignated grade A (dark green) have the best nutritional some suppliers (e.g. Peijnenburg, Alpro) are already re- quality while products graded E (dark red) have poor nutritional quality. Supermarkets in the Netherlands recently stopped their opposition to a logo that shows at a glance whether a product is unhealthy, according to Marc Jansen, Director at the branch association of su- Globally, grocery stores are permarkets (CBL)7. Supermarkets are now calling for a increasingly taking an active role logo similar to the well-known energy label and is based on the French Nutriscore. In the meanwhile, PLUS and in health promotion and organic Albert Heijn use “friswijzers” on its shelves to create products.

6 World Health Organization (2017) 7 NRC (2018) RETAILes: The Dutch grocery sector in 2030 9

awareness among customers on how many calories and which receive greater customer attention. Here too, sugar each soft drink contains. With colored labels on health is trending; confectionery and sugar-sweetened the shelf it is indicated how much sugar a drink con- products are being replaced with healthier ones (e.g. tains. Another response to the health trend is to focus Aldi stores in the Netherlands now showcase packages on ready-made healthy foods; for example Albert Heijn of nuts and seeds at registers). Lidl has taken the lead is well known for its packages of fresh ingredients for by introducing “healthy registers” in the Netherlands, fresh guacamole, hummus, curries and soups. Since the but grocery retailers Albert Heijn and Dirk van den grocery retailer has already collected the fresh product Broek are now also taking up the practice. into one package, the only thing the consumer has left to do is prepare it at home. Globally, grocery stores take an active role 3. Promotion in health promotions and organic products Initiatives within this category entail among others the – new concepts like the US based Hy-Vee use of prominent, well-stocked displays to promote Health Market store pop up healthier foods, which incentivizes customers to - pur Dutch supermarkets are not alone in promoting and chase more vegetables and fruit. Beyond traditional capitalizing on health today. Globally, grocery stores are promotion, influencers (bloggers and vloggers) are rap- increasingly taking an active role in health promotion idly gaining power in influencing consumers, like celeb- and organic products. In the US, demand for organic rities as advocates of a healthier lifestyle or promoting food has been steadily rising8, along with the success sports activities and exercising. Albert Heijn recently in- of Whole Foods Market, and has prompted many large troduced actor and fitness advocate Davy Eduard King retailers to boost their offering of organic food. Whole in its commercials on how to strengthen your shoulders Foods engages in the retailing business of natural and and buttocks by training with bottles of Lenor fabric organic foods. It operates a chain of natural and organic softener. Promotion can also work with respect to un- foods supermarkets in the United States, Canada, and healthy products – for example, with respect to energy the United Kingdom. Retailers like Whole Food have drinks, Aldi, Lidl and Dirk van den Broek all announced tried to create positive shopping experiences around that such products would no longer be promoted in healthy food, for example, by utilizing techniques such their weekly discount folders or promoted in separate as softer lighting that make products that don’t have displays in their supermarkets. colorful packaging more appealing, or playful signage that draws attention to health items. US based Trader 4. Position Joe’s is a supermarket with only about four thousand The position of products is another area where grocery items of which 80% are of the chain’s own brand of retailers are changing. Store layouts are being changed which the food contains no artificial flavors, colors, or to give more prominence to healthy products. Another preservative, or genetically modified ingredients. Sim- big shift is in the products displayed at checkout aisles, ilar to established brands like Whole Foods or Trader

8 United States Department of Agriculture (2017) 10 RETAILes: The Dutch grocery sector in 2030

Joe’s, Sprouts Farmers Market is dedicated to provid- icated organic private label products. As such, there is ing fresh, organic food at prices that make it extremely continued innovation at grocery retailers in the Nordics competitive with their higher-priced competitors. Hy in the era of healthy and organic products. Vee, another chain is the US, focusses on customers’ healthy lifestyles. Hy-Vee introduced in 2018 the con- Dutch grocery retailers have not (yet) established a cept Health Market stores which offer products and ser- dominant position with regards to the health trend; vices that meet all of their health and wellness needs. although they are no longer against red labels on pack- aging12 and are deploying several initiatives with regard to banning cigarettes and sugar to a certain extent, a Nordic countries are leading the way in leading position is reserved for grocery retailers that understanding the importance of natural, take it one step further. It was Albert Heijn back in the sustainable lifestyles – Dutch grocery re- days that made wine and kiwi’s accessible to Dutch tailers that best guide and offer customers households13 - but none of the supermarkets brought the healthiest choices can be the winner of the pursuit for health in full form to the Netherlands. tomorrow Consumers will increasingly focus on the pursuit of European countries account for the highest shares of health in the next decade. Acting now in response to organic food sales as a percentage of their respective this trend and becoming the ‘health leader’ can offer a food markets. The per capita consumption of organic large commercial opportunity for grocery retailers. The product in the Netherlands is valued at EUR 90, some- supermarket that best guides and offers customers the what above the EU average number9. Consumers in healthiest choices can be the winner of tomorrow. Nordic countries are the most focused on health, and lead all other countries in terms of buying organic, and understanding the importance of natural, sustainable lifestyles10. Average spending of more than EUR 200 per person on organic products were reached in Den- mark and Sweden. Furthermore, Denmark is the country with the highest share of organic food sales as a percentage of their respective food markets (estimated at 13.3% for 2017) worldwide.11 Coop in Sweden also recently announced that 31% of all food it sells is organic; they have targets of 50% by 2027. Moreover, Netto in Denmark and Axfood in Sweden introduced even ded-

9 Global Agricultural Information Network (2018) 10 Euromonitor (2018) 12 NRC (2018) 11 Organic Denmark (2017), based on Fibl (2016) 13 Distrifood (2011) RETAILes: The Dutch grocery sector in 2030 11 12 RETAILes: The Dutch grocery sector in 2030

PUBLISHER Roland Berger Amsterdam World Trade Center Amsterdam Strawinskylaan 581 1077 XX, Amsterdam The Netherlands +31 20 796 0600 www.rolandberger.com

EFMI Business School Groeneveld 2 3744 ML Baarn The Netherlands +31 35 303 7777 www.efmi.nl

AUTHORS Alexander Belderok – [email protected] Mireille Einwachter – [email protected] Marcel van Aalst – [email protected] Joris Winkelman – [email protected] Rosie Veul – [email protected]

DISCLAIMER This study has been prepared for general guidance only. The reader should not act on any information provided in this study without receiving specific professional advice. Roland Berger and EFMI Business School shall not be liable for any damages resulting from the use of information contained in the study.