The evolution of the physical store Contents
CEO statement and executive summary 03
Why store — singular — not stores of the future? 04
IGD’s four forces of change: ‘STAR’gazing 05
Foundations for our analysis 07
What will retailers and suppliers have to do to prepare for the store of the future? 11
Conclusion: preparing and building for the future, now 20
Our consideration checklist 22 CEO statement
The global food and grocery We believe there will always be a industry is undergoing a genuine place for bricks and mortar stores revolution. It’s a revolution in what in grocery retailing. However, to products are sold, how they are ensure that the physical store sold and how they are made, and remains relevant for shoppers, it’s being driven by technology, retailers and manufacturers must social and cultural change and the work collaboratively to prepare economy, marching hand in hand. for the very different future that is taking shape around us. At IGD we monitor grocery retailing around the world and Change also signals opportunity, we’ve identified the three critical and we’re delighted to share IGD’s battlegrounds that we believe will research into how stores will need shape the future of global food to evolve in this special report, and grocery. Will the shoppers of prepared for The Consumer Joanne Denney-Finch OBE the future go online, or will they Goods Forum and its E2E Value IGD Chief Executive visit a physical store? Will they Chain Learning Series. We favour a larger store, or a smaller hope our insight brings you one convenience shop? And finally, will step closer to seizing the great they buy food they can eat on-the- opportunities that lie ahead. go, or food they can enjoy later, at home? Executive summary
Shoppers’ expectations are the very best retailers continuing continually rising. They want to drive footfall. shopping to be quicker, more effective and fulfilling. They also By removing the chore of buying expect their investment of time products that shoppers do not and money to be better and more want to invest time in, through consistently rewarded, increasingly subscription models and instant at a personal level. reordering, retailers will be able to create in-store offers that excite They demand similar levels of and engage shoppers more than service and quality throughout online shopping can. Retailers their shopping journey. Online and suppliers will work together to shopping, which is increasingly attract shoppers to the categories convenient and commonplace at a they want to invest time in, global level, is partly driving this. inspiring them with new products and engaged staff. Physical stores must rapidly evolve and innovate to remain Best-in-class retailers who relevant. As digital solutions create collaborate with suppliers a world where channels become will provide more sources of less relevant, retailers need to inspiration and reward shoppers’ approach the challenge of evolving loyalty more clearly and physical stores for the future in consistently than promotions can. innovative ways. Ten areas have been identified for The physical store will continue to retailers and suppliers to consider play a significant role in the future as they prepare for the physical of shopping. Despite the growth store of the future. Investigating of e-commerce and subscription these opportunities will enable models enabling shoppers to save all sides to benefit from evolving time and money, the physical store shopping patterns. of the future will stay relevant, with
CEO statement and executive summary 3 Why store — singular — not stores of the future?
In our analysis, we are discussing and suppliers, this is changing the store of the future, rather than as the role of formats evolves. looking channel by channel at how Increasingly small, urban stores each could evolve and develop. can meet the needs of shoppers Shoppers do not identify with or looking to complete a large weekly understand channels; they simply or monthly shop. Retailers need go shopping. to consider how they can make the most of every touchpoint Our vision for the store of the with shoppers, especially as future applies to both retailers and individuals. manufacturers. It will be centred around a focus on the shopper, All formats – hypermarkets, utilising increased involvement of supermarkets, discounters and digital solutions and automation, convenience stores – will evolve in amongst other elements. the longer term. Also, the evolution of the physical store will not be As technology enables stores to a straight line or be the same for meet a broad range of shopper every country, due to changes in a missions, demands on the country’s economic and shopper physical store will likely narrow to outlook. a core set of products or ranges. Retailers will be able to remove We believe understanding how other products or give them less shopping will evolve will help space. companies consider what they need to do to prepare each store. However, at this stage, retailers It will also help retailers think will need to be aware that merely about how many stores they moving towards a more efficient need and drive a better return on store model will not help them investment. stand out. They will also have to emphasise those elements of their Ultimately, the topic requires offer – around personality and a long-term approach. By those hero categories for which maintaining existing structures and they are famous – that help them processes and fitting future views stand out. of retail development onto them, many are limiting the potential of While discussions of format used their stores. to be the endpoint for retailers
Why store - singular - not stores of the future? 4 IGD’s four forces of change: ‘STAR’gazing
Success can be achieved through these four forces, assess thought leadership that comes the potential impacts and from being visionary. To be truly opportunities, and apply this visionary, retailers and suppliers thinking to their future strategies. need to understand and plan for the changing forces influencing It is through this model that we shoppers’ needs. At IGD we approach all our future thinking have developed our ‘Four Forces – be it around shoppers, supply of Change’ to help businesses chains or skills needs – with this consider the issues shaping the informing our physical store of the future. future analysis.
Stores will be impacted by these In this report, we will present real changes; continuing urbanisation store examples we have visited. and aging populations, the These have helped inform the increasing use of automation, the direction of the physical store rise of anti-establishment feelings of the future. We will show how and the potential for a reversing of these innovative stores link to our the process of globalisation. Four Forces of Change and the potential driving force behind the To survive and thrive, businesses development. need to know and understand
The four forces informing and influencing store evolution Look out for the four forces icons signposted throughout the report
Societal Resource Shifts Resilience
Transformative Altering Technology Authorities
IGD’s four forces of change: ‘STAR’gazing 5
Foundations of our analysis
Physical stores will have a Retailers will focus ever more continued role to play on the shopper
Through our global retail IGD believes that it is best to programme, which last year saw start analysis with the shopper. In us visit over 700 stores in more recent years, not every decision than 50 countries, and network of taken by retailers or suppliers has industry contacts, we believe that had the shopper at the heart of there is a place for physical stores the decision-making process. The in the long-term future of grocery sharing of global best practice has retailing. also meant that some ideas have been adopted widely, potentially Despite e-commerce’s growth, without thinking about whether shoppers, even in advanced those developments work locally. markets, still use stores for many missions, top-up or distress The store will also play a different purchases, or because they role as demographics change. In enjoy shopping. For many, stores the future, the store could provide let them see, touch and feel a social element, helping elderly products, and give them the shoppers, acting as a focal point instant gratification of being able for the community or providing to buy something instantly. information to update and advise people. It is currently easier to inspire someone to buy something in Overall the store of the future a store, if retailers build on the will be focused on meeting emotional elements that a store the needs of local shoppers, can offer. Given that stores will especially as individuals. Through have to evolve to compete, bold better use of data, retailers and retailers, in collaboration with suppliers will consider how they suppliers, can attract shoppers can truly understand shoppers to stores by offering a unique as individuals. The new levels of experience that plays to each insight will help them reflect on retailer’s own strengths and what shoppers need, and when, differences. where and how shoppers want those needs met.
Ultimately, especially in the short term, not every innovation needs to drastically change shoppers’ lives, but each development will need to make shopping more convenient and help retailers to be more relevant and profitable.
CHALO! FRESHCO, SOBEYS, CANADA
By 2031, it is forecast that one in three Canadians will be from a visible minority, with immigration accounting for around 80% of population growth over the next 16 years. Sobeys opened its first ethnic store format, Chalo! FreshCo in 2015.
IGD was shown the store to understand how Sobeys has adapted its FreshCo discount grocery format to focus on South Asians, one of the largest ethnic groups in Canada. We saw how from the external and internal branding, to the graphics and merchandising, this store takes many design cues from grocery stores in South Asia. In developing the concept, the Sobeys team undertook numerous trips to India to learn more about appealing to South Asian shoppers and to build supplier relationships.
Foundations of our analysis 7 And cut the number and in-class retailers. They will also rely frequency of promotions more on the services that stores provide to engage with shoppers The growth of e-commerce who have moved their core subscription-like models and the purchases online and have more price transparency that online time to invest in the remaining stores provide is already reducing categories. the impact of promotions. Shoppers can easily compare Our vision of the store of the future WAITROSE, UK prices between retailers. This is focussed on experiences. A will mean that in-store they will key area where stores can meet Waitrose is trialling demand clearer pricing and this need is with events. Retailers video-enabled shelf- promotional information. Given can be creative and tie events edge labelling, which this, lower, more stable pricing is into local traditions, or mirror their builds on existing electronic shelf- becoming more important, with shoppers’ beliefs or values. edge labelling systems. This system this likely to grow as retailers look makes it significantly easier to centrally to other strategies and initiatives The expected reduction in the coordinate price changes at the shelf edge. Full colour, video-enabled to drive footfall to stores. Our UK number and size of promotions will shelf-edges will enable Waitrose and shopper research shows that help smooth demand for retailers its suppliers to build deeper shopper 63% of all shoppers agree that and suppliers alike. This will in turn engagement. there should be fewer promotions, enable supply chains to adapt preferring retailers to offer to changing needs and meet Categories where shoppers tend to everyday low prices. shopper demands, rather than interact at the shelf-edge and seek having to deal with the highs and inspiration, guidance and education Instead of eye-catching lows in demand brought about by are the most likely to benefit. In beer, wines and spirits, for example, this promotions, service and staff will promotional activity. could allow seasonal recommendations become the differentiator for best- and tasting notes, as well as targeting specific times of the week or day.
Foundations of our analysis 8 There will be fewer and smaller Online retailing will provide ever stores more price transparency. There will be fewer promotions, while Despite our belief in stores’ long- footfall will be driven less by term viability, given the expected price. Combining this with higher shift of certain products online, operating costs and an increase retailers will aim to reduce costs in the number of competitors, and operate fewer of them. Stores retailers’ ability to operate will also be smaller, on average, unprofitable stores for an extended than they are today as there will be period will decline significantly. less need to carry as much stock. Retailers need to generate a return on investment from every store. As omnichannel strategies become more embedded and investment is required across more channels, there will be less money to invest in store estates. This will see investment focused in expanding and remodelling stores that help meet a range of shopper missions and needs as part of an omnichannel strategy.
Fewer global retailers — more specialist operators
The competitive pressures being felt globally by grocery retailers are leading to slimmer margins and reduced profitability. To invest in stores and to continue this spending to maintain their relevance, retailers will need to be even more profit and cost- SEIYU, WALMART, JAPAN focused.
Walmart has opened a new hybrid Seiyu store in Tokyo, Japan. It is designed This will challenge the need for to address the demands of omnichannel shopping. The format was specifically a physical store in every region designed to satisfy the digital and physical shopping needs of Japanese customers. or country. We expect continued The store is a mix of a traditional convenience grocery store on the first floor, and an online grocery retail retrenchment and a focus on warehouse (dark store) on the second floor. The store is uniquely positioned to cater to a mass reaching market-leading positions. audience. By having dedicated inventories for e-commerce, they can meet more online orders, even for a store with a small footprint. At a local level, it is likely that grocery retailing will become more In addition, it maximises inventory turnovers as the store can pick from online inventories on the second competitive as niche and specialist floor, whilst also being able to select some items – such as produce and meat – from the physical store. retailers emerge to meet specific or local shopper needs and tastes. This will mean greater choice for shoppers, but more fragmentation for suppliers.
Foundations of our analysis 9 Some 83% of UK Robotics and Artificial Intelligence (AI) will make stores shoppers are open to more efficient
Rapid advances in machine using technology to capabilities, combining both AI and robotics, promise to transform the economics of retailing and help help them with their improve the outlook for stores. AI and robotics will enable retailers to make stores more efficient, although there will be short-term grocery shopping now challenges on how to balance improved in-store services and and in the future reduced costs. Discovering where the best uses of robotics will come, means looking outside the grocery industry; for example foodservice operators.
Striking the right balance between automation and human interaction will be critical in winning shopper loyalty and making stores more attractive. Robots are set to mirror the benefits of e-commerce, minimising the routine tasks that add to labour costs.
Robotics should aid shoppers’ perception of stores by minimising mistakes and improving on the accuracy of routine tasks. This will limit frequent shopper frustrations, LAWSON, JAPAN After the payment such as out of stocks, incorrect is done, the changes to store designs and Convenience store chain Lawson basket slides planograms and helping mission- and Panasonic are testing a staff- down through focused solutions, like dual less checkout, Reji Robo. The a hole in the cashier table and the automated checkout calculates locations. If retailers are able to machine packs the purchased items the transactions and automatically use robots and machine learning in a bag automatically. packs products. to carry out routine jobs, staff can be freed up to focus more on One of the reported reasons for At the checkout, shoppers place introducing Reji Robo is to alleviate a customer service and interaction the basket in a designated area staff shortage, due to challenges in in-store. of the cashier table, then swipe finding people to fill the role, and to products through a barcode reader. reduce peak-time congestion. A screen displays the total cost of the purchases.
Foundations of our analysis 10 What will retailers and suppliers have to do to prepare for the store of the future?
We have identified 10 areas to not rejecting any key missions that consider as the store of the future shoppers go on. Retailers and evolves. suppliers can then collaborate to build solutions and invest Services in a more manageable subset of missions, rather than trying 1. Understand shoppers and to spread the same amount their missions of money more thinly across a larger number of missions. There Best-in-class retailers recognise will also be a need to better and cater for shopper missions, communicate the role of mission- but there is more to be done. This focused stores to shoppers. is especially the case in our vision of the future, where distinctions The same shopper is on different between formats will become less missions at separate times of the relevant and retailers and suppliers day, month or year. For example, engage and interact with shoppers there is a need to differentiate in a more personalised way. when a shopper may be dieting or when they are looking to indulge This understanding should start themselves or when they might be outside the store, in order to build visiting with their children. In each an understanding of the complete set of circumstances, the product shopper journey. In-store this will suggestions could be different. enable stimulation using shopper psychology, incorporating smell, Social listening tools will allow taste and making stores more better tracking and understanding exciting. of shoppers’ needs. This will help inform and drive a quicker This will require a focus on a core decision-making process. subset of shopper journeys, while
What will retailers and suppliers have to do to prepare for the store of the future? 11 2. Better data to enable better products. service Unique engagement
Enhanced use of data and Retailers and suppliers will need to analytics will help retailers collaborate to engage with people identify shoppers on an ongoing as individuals, both in-store but basis. This will help retailers to also along the whole shopper make more informed decisions journey. This will involve building around the assortment different stronger emotional connections stores carry and the quantities with shoppers and will evolve needed. It will also help them to to give shoppers targeted and understand the price elasticity of personalised offers. certain products, which will be key in markets where franchising Over time, retailers will adapt accounts for a larger share of their strategies to focus on the store owners and operators. most loyal shopper, focussing less on amount spent, rather on Personalisation – from proportion of disposable income. engagement to tailored product Rewarding this different view of and curated ranges – will be a loyalty, rather than simply total major part of the store of the spend, will be a key differentiator future. More data will be collected for best-in-class retailers of the in-store. Sensors will be used future. to create interactive shelves that identify individual shoppers This development will require 23andMe.com in-aisle, enabling personalised retailers to reflect individual incentives and product shopper values. Shopper data suggestions. A great example of will support this, but will become personalisation is harder to exploit as shopping 23andMe solution, Unique products patterns fragment. which uses genetics to guide shoppers to better food choices. In conjunction Enabling a shopper to create New sources of insight will be with third parties, like Zipongo, a unique product is ever more needed to understand shopper 23andMe provides personalised appealing for people and helps values. This will include purchasing nutrition plans. a retailer, supplier or brand to data, but increasingly insight stand out. Shoppers are searching These take into account individual on their values, beliefs and food preferences, health goals and out experiences over mass- preferences. It will become ever biometrics, but also genetic markers market products, which has more challenging for retailers and impacting how bodies may respond to been accelerated by digital and will require further investment in food choices. e-commerce solutions across the data acquisition. It will also need retailing industry. Although much the tools to allow quicker and Users can then adapt their shopping hyped, it is likely that 3D printing more efficient collation of insights. choices with information at a genetic will still play a role to enable level. companies to create unique
What will retailers and suppliers have to do to prepare for the store of the future? 12 42% of shoppers are interested Unique inspiration Modular store formats – whereby in promotional As shopping patterns adapt, shelving or units can be moved so more purchasing decisions more easily and quickly to enable notifications when are likely to be encouraged or spaces to evolve and react to inspired in store. Retailers will shopper demands – will play a near a store need to mirror online suggestion more significant role in our vision mechanics so that stores can of the store of the future. recommend products that would work well with items already This is becoming increasingly 44% are interested purchased – for example with feasible, especially as 3D printing relevant recipes. technology improves and in being alerted becomes cheaper. It will also Unique promotions become ever more necessary for to offers on their retailers to be able to build stores Until retailers have the insight that offer the right range in the phone in different to target by values, beliefs and right location, whatever the size of preferences, they will continue the store. parts of the store to use demographic information. Push notifications will enable This may seem at odds with the retailers to provide more tailored, need to generate economies of time of day promotions in the scale to maintain profits. But it 44% are interested short term as shoppers reach the will help retailers to build links store. with shoppers and drive footfall. in collecting and This will require better clustering 3. Be ready to enable flexible of stores to allow more strategic using their loyalty store designs investment. It will also require companies to identify their base card points through Robotics and other solutions will offer so that all stores meet free up space in-store to excite shoppers’ expectations. their phone and engage shoppers and drive footfall. This will enable space to Curated ranges that are easy be dedicated to hero categories, for store staff to maintain, and helping them to spotlight those easy to shop, are ever more 3D-PRINTED they feel are important for their key for retailers. This will create HOUSE, shoppers. This will lead to more challenges, especially from RUSSIA focus on fresh food, mission- a supply chain point of view. focused fixtures and convenient However, as stores aim to drive Apis Cor, a 3D-printing company, built meal solutions. footfall, engage with and excite a 400 sq. m house using an on-site shoppers more, so retailers will mobile printer in 24 hours. The house Store layouts will require greater have to build solutions that fit was built in one day with most of it – differentiation and store managers this need. They will also need internal and external walls – printed, will be given greater autonomy. to consistently keep it fresh, with additional fixtures – windows and furnishings – added later. This unique vision for stores will surprising and attractive. need to be counterweighted by The house was built for only the need to maintain an efficient US$10,134. The fact that the house supply chain. was built on-site, rather than off-site and assembled on-site, underlines the changing nature of the technology, and its increasing adaptability.
What will retailers and suppliers have to do to prepare for the store of the future? 13 4. Free up time for, and invest and better informed, so they can encourage sampling, add in, employees mirror online solutions around excitement and create a more product information. Staff will marketplace feel that will attract Freeing in-store staff will be one also need to be able to offer shoppers. of the main benefits of robotics inspiring and exciting answers and the in-store efficiencies to the questions that shoppers However, retailers will need to that technology will bring. This have around meals, flavours and make sure that employees do allows employees to focus on product choices. not feel they must engage with value added services that meet every visitor. Understanding shoppers’ needs. As technology Employees should be able to when shoppers want help will be removes some of the human add creativity, empathy and key to keep them coming back. elements of in-store services, passion to the answers they give Shoppers should be encouraged it will be essential for stores to shoppers, so they are set apart to perceive stores as a source of have a friendly face and to bring from more mechanical solutions. information and inspiration, rather their brands to life with a unique For this, employee engagement than feeling sold at or harried personality. A retailer’s staff will and motivation is key. For long- to purchase something. This is become even more important in term loyalty, retailers will need to fundamental, as staff will play a our vision of the store of the future make emotional connections with leading role in driving loyalty as – it will be key in differentiating the their shoppers, and their staff part of shoppers’ omnichannel store from its rivals. need to play a leading role in that journey. engagement. Staff investment will enable true Ongoing training is a major part added value for shoppers. Given For suppliers, investing in sales of keeping employees engaged the vast amount of information staff and in-store merchandisers for longer, so that they can play online, staff will need to be more will also be key. They will help a long-term role in engaging with loyal shoppers. Well-trained staff who provide tips, help and advice as part of in-store schools and in categories where shopper understanding is limited are likely to have an impact on sales. Employees can reassure a shopper the product is right for them or inspire them to try something new, leading to an additional item or two to be added to a shopper’s basket.
Engaged and engaging staff will also be key in ageing and increasingly health-conscious COSTCO, US free samples, which are a societies where there is a very effective way to get need for in-store advice and shoppers to try something Costco pays its staff a comparatively high recommendations. The ability for new, while also helping staff wage from the start, which, along with a interact with shoppers too. staff to recognise if a customer generous benefits package helps to attract and may have dementia, for example, retain people. The sampling also helps and how to help them will become Costco offset some of the perception that When IGD has been in-store with Costco more important as populations it does not invest in its stores, given their in Canada, Australia, Japan and the UK (or age. comparatively austere look and feel, while also globally) we see first-hand how this has helped helping them appear generous and putting the create an engaged staff, who then interact shopper at the centre of what they do. and connect with shoppers in-store. One area where it does focus this effort is with its
What will retailers and suppliers have to do to prepare for the store of the future? 14 5. Reconsider stores’ ranges rotated more often and efficiently More of shoppers’ to reflect seasonal or topical An element in creating an trends. regular purchases engaging store will be in adapting and evolving the range that they Stores will also need to stock will have shifted carry. The aim will be to offer more local variations or products. what e-commerce cannot. More Despite many younger shoppers online, so stores’ of shoppers’ regular purchases being globally minded and will have shifted online, so stores’ connected, the desire to have ranges will need to ranges will need to be unique, links to local regions or areas flexible and relevant to sustain and buy products from them be unique, flexible footfall. remains strong. Supporting small and medium-sized producers and relevant to A part of this will come through is positively perceived by product optimisation, i.e. having shoppers, helps them sustain their sustain footfall the right number of SKUs for a community and allows them to feel given category, rather than simply special as they have something their removal. There will always unique. be a place for brands in which manufacturers invest and innovate Centralised buying organisations with. have helped drive efficiencies throughout the buying process, Our vision of the store of the but they have also led to ranges future will see a more exciting looking more similar across experience, where certain ranges retailers. Enabling stores to are consistent but specific mirror the local flavour of their products are only available for neighbourhoods will help to tie a brief period. It will also require shoppers to those stores for buyers, the supply chain and longer. stores to enable products to be
ALBERT HEIJN XL, PURMEREND, NETHERLANDS
When IGD visited Albert Heijn’s newly renovated store in Purmerend, we saw its ‘growing wall’. The exciting and engaging fixture enables shoppers to cut the amount of herbs they want.
This is the retailer’s hero category. The fixture is attractive and reaffirms the quality on offer, conveying messages of freshness to shoppers as they enter.
What will retailers and suppliers have to do to prepare for the store of the future? 15 Operations The flexibility of payment solutions 6. Remove friction from the will need to be replicated by whole journey enabling shoppers to use any mobile device. Optimising stores in Initially, this will focus on payment the short term for mobile devices options, but there will be a will be key, but in the longer-term constant need for retailers to changes in devices will need to be understand where and why there closely watched. is friction in shopper journeys around the store. A speedy The use of digital tools within experience at the checkout is stores will be important as very important to shoppers. This shoppers use their devices ever will also free up space for new more. The store of the future features and fixtures and gives will need to incorporate digital staff the opportunity to spend solutions to create a richer, more more time helping and inspiring connected experience. shoppers or to create a more spacious environment. Companies will need to be AMAZON GO careful how and when they This is likely to be an incremental combine technology and staff Despite it not being development process and will so that it is complimentary to the first to offer shoppers’ journeys, rather than a ‘just walk out require more flexible and a intrusive. Digital solutions must solution’, Amazon Go has generated wider range of payment options. a lot of coverage and is becoming the Smartphones will be a major part play a role in delivering a truly store shoppers are comparing others in this journey and will require omnichannel experience that against. retailers to align their development provides consistent messaging to alongside the trend towards more shoppers. Amazon’s ‘just walk out’ technology will personalisation. Smartphones enable shoppers to simply pay through should also enable shoppers to their app and leave the store without having to queue at the checkout. budget more effectively.
What will retailers and suppliers have to do to prepare for the store of the future? 16 7. Build and support brands The number of channels that Brands and companies communicate through Investment in brands will be will need to evolve too, while mass retailers will need important in preparing for the store market messages will provide of the future. Brand integrity is less of a return as personalisation to collaborate crucial. Manufacturers will need to grows. In the short term, continue to invest to find creative finding ways to build emotional to make sure ways to build and support their connections through social media brands so that customers trust channels like Instagram, Snapchat that content and them implicitly. and YouTube, where shoppers look for inspiration, will be a major information about For those products and categories shift for brands. Companies will sold through subscription models have to consider how best to do products is given and solutions, building a brand this, as our consumer research in the short term will mean they shows that 52% of UK-based in an effective and become the ‘go to’ brand for a shoppers cannot imagine reading category. This is key in a world of or looking at social media posts compelling way repeat purchases, as brands are as part of the pre-shop process. likely to become less visible or less Convincing shoppers of the regularly seen if they are bought benefits of engaging with them in on subscription, as they will not the short term, though, will provide be seen on a shelf or screen. Also, retailers and manufacturers with as the focus on online profitability the opportunity to understand their becomes more important in the shoppers more in the future. short term, given the functional nature of these categories, it is How and what brands spotlight likely that retailers will look to grow as benefits to shoppers will private label ranges to support need to be adapted and aligned their margins. by country, initially, and then personalised further in the longer Only products that offer true term. What shoppers are looking development for the category for from ‘health’, ‘wellness’ will be required as a result. Minor or ‘wellbeing’ products differs changes in product development strongly by region and country CADBURY will not get marketing airtime – and by individual. Spotlighting AND or space on the shelf and the same benefits for several SNAPCHAT are less likely to generate the shoppers will not work. desired return on investment. Cadbury ran a campaign through Suppliers will need to invest In-store marketing will play a role Snapchat playing on Crunchie’s ‘Friday more in insight to make sure the in reinforcing these messages, Feeling’ tagline. product development process but will need to complement is effective, while also enabling shoppers’ journeys, rather than Cadbury enabled Snapchat filters it to react quickly to changes in interrupt. Brands and retailers on three Fridays in May 2016 with it almost hitting its target for the whole shopper demands. This process will need to collaborate to make campaign in the first week. will be easier for retailers who sure that content and information have access to loyalty card and about products is given in an Also, as Snapchat provides a other sources of data in the short effective and compelling way. more personal interaction, so the term. However, in many cases, Brand ambassadors, ideally not engagement with the brand is branded manufacturers are likely connected to any of the parties potentially a lot more beneficial to to understand and know their involved, will play a role in raising the brand than through less targeted shoppers better and can add real the visibility of a brand or product means. value to the category in the longer in an engaging and unbiased way. term.
What will retailers and suppliers have to do to prepare for the store of the future? 17 8. Involve the supply chain team Innovative ways of a consistent strategy that earlier and more often working advances the whole business, potentially hurting its long-term To meet shoppers’ growing prospects. 9. New stores will require new demands of stores, they, in turn, KPIs and new JBPs will challenge retailers’ supply Benchmarking performance will chains. As a result, understanding In an omnichannel world where need to evolve from a focus on demand planning on an ongoing stores play a key role in meeting short-term measures to other basis and being able to react specific shopper missions, stores elements, like shopper loyalty, quickly will require greater and their employees cannot have their lifetime value and the share understanding of the end-to-end their performance measured in of spend with a given retailer. profitability of supply chains. the traditional ways. Retailers will need to come up with new KPIs For staff As margins are squeezed as that measure the right things competitive pressures drive for the store of the future and In-store efficiency is a key down prices and costs rise due the demands that shoppers are measure, with replenishment, to increasing complexity, supply placing on it. stock levels and staffing costs as chain efficiency becomes more a share of store sales all closely critical. Better availability and watched. However, as automation For retailers innovative solutions to meet plays a bigger role and employees shopper needs will support sales This is a challenge that many are focused on the more value growth, while greater efficiencies listed retailers are facing now. adding elements of their role will make them financially more Growth is a requirement for – engagement, services and sustainable. Supply chains play analysts, with comparable or like- inspiration – costs will likely have an increasingly strategic role in for-like or identical store sales the to rise in the short term. As such, business plans and supporting measure against which retailers’ success will be measured by sales overall goals, despite an ultra- stores are measured. Focusing and customers’ engagement competitive and reactive trading solely on sales will miss the other with the brand and how deeply environment. key elements that the store is stores are involved in shoppers’ playing in a retailer’s evolution. interaction with a retailer. The role of supply chains has As stores are key to a retailer’s typically been viewed more on engagement, further KPIs should Data and analytics will play an cost reduction rather than driving track marketing, brand building increasing role in helping staff growth, which has been more strategy, and how they inspire range their store. Meanwhile, in the preserve of commercial and shoppers. the medium term, retailers will marketing functions. But as need to acquire more in-house shopper expectations increase, This is accentuated by the technical expertise and creative around availability and fresh expectation that retailers will talent to create more in-store solutions to meet their needs, be looking to move the routine excitement, while also targeting supply chains have stepped up purchases online to enable them against these changing to play a bigger role in delivering shoppers to maximise their needs. Ultimately, new models will growth. Focusing on costs time in-store and to be inspired. need to be built so that retailers eventually runs into a fundamental Retailers’ online stores should can measure where stores and limit. not be viewed as ‘cannibalising’ staff are meeting the needs of or ‘stealing’ sales from stores. shoppers at a personal level. Removing logistics costs, which Instead retailers who are building gets incrementally harder, would true omnichannel strategies that Only then will retailers be able to end efficiency opportunities. have evolving stores at their core measure and show that the store However, there is no limit to need to be growing their total is truly offering what shoppers growth, so focusing the role of sales. Thinking and measuring want on a softer engagement supply chains on meeting and operations in silos or by channels level, rather than solely from a pre-empting shopper demands will limit the way retailers develop sales point of view. unlocks far greater potential.
What will retailers and suppliers have to do to prepare for the store of the future? 18 10. Get buy in from the top
Creating the store of the future will require investment and long-term planning. Retailers will need to establish and maintain a company-wide view of how the store will develop for their brands, putting the shopper at the heart of this evolution.
Senior teams will need to commit to drive such wide ranging, long- term changes. Realising that a change in the way stores and employees need to be measured will be important in enabling leadership teams to manage change effectively. This will be fundamental for teams who support stores and have limited or no contact with shoppers on an ongoing basis.
KROGER, US
Kroger enjoyed a run of 52 quarters of continued positive same store sales growth, which ended in Q4 2016, underlining the long- term success that it has enjoyed following the implementation of its customer-centric strategy. The model’s execution, informed by shopper research, was driven from the top.
Discussing the strategy, the company’s chief executive, David Dillon, has said, “if you have short-term thinking, it’s hard to have long-term goals”, underlining the need to put in place and then embed those initiatives over an extended timeframe.
What will retailers and suppliers have to do to prepare for the store of the future? 19 Conclusion: preparing and building for the future, now
Physical stores are best placed what shoppers say they want and to deliver instant gratification, focusing initially on those elements impulse purchases and customer that they are most ready to adopt service that enables face-to-face as part of their shopper journeys. engagement. We are seeing This is where using data in the stores experiment in many ways right way will be important. to enhance the experience, concentrating on visual appeal, Not only will this help drive product freshness, provenance adaptations to range and store and health. layout, but it will also provide insight into those technologies The digital world advances at that shoppers are using and lightning speed and the online how they are using them. This shopping experience will just keep will provide a business case for improving. Some products will be prioritising investment in those replenished automatically in future technologies that shoppers want as sensors in our homes detect to be introduced or developed the need for another delivery. This further. To maximise the return will make it even more challenging on investment, collaborating with for physical stores to remain other third party service providers relevant and engaging. is a route to generate a more profitable result, quicker. Our vision of the store of the future will require investment. This We therefore expect the stores of is increasingly challenging given the future to merge the physical slimmer margins, falling profits and and digital worlds, to create a a growing range of demands on much more absorbing experience capital expenditure. Set against featuring fresh food, new this is the issue that not every products, unique events and more solution will be profitable or will ways to taste, learn and discover. take a period to provide a positive Experts will be on hand to give return on investment. There are advice and deliver a personal risks in building the foundations for service, while new digital solutions the store of the future. However, will help to make shopping less of given our belief in the store, the a chore. risks of not investing are clearly even higher. These initiatives may just be what earns you long-lasting customer The challenge for retailers will loyalty. be picking through the noise of
Conclusion: preparing and building for the future, now 20 We expect the stores of the future to merge the physical and digital worlds Our consideration checklist
What can retailers and manufacturers do differently to prepare and benefit from our vision of the Store of the Future? For retailers approaching the topic of the For suppliers, we suggest Store of the Future, we would propose: they consider:
Knowledge of shopper trends and Provide more time-saving solutions behaviour Invest in product solutions and formats that It will be crucial when thinking about how your help these shoppers save more time e.g. pre- 1 stores will develop to understand shoppers cut, meal kits, on-the-go breakfast solutions; and their missions, by the time of day or quick to prepare meals using pre-prepared occasion. and raw ingredients.
Invest in cashless shopping Build an emotional connection Removing the checkout will be the first step With post-millennials favouring brands, build to enable shoppers to save time and allow an emotional connection through advertising, 2 them to pick up products and go. social media, packaging design and in-store merchandising.
Consider mission-based layouts and Innovate with inspiring NPD fixtures Look into bold new product types and Help shoppers save time by introducing more formats that provide time-saving solutions, 3 cross-category merchandising, especially for and build interest and variety to grocery food-to-go and evening meals. Also consider shopping. how such thinking could inspire other categories.
Develop a mobile first approach Focus more on healthy options Utilise smartphones to influence the shopper Demonstrate your health credentials more to journey at numerous touchpoints. Develop these shoppers. Promote healthier food-to- 4 more ways to integrate smartphones to help go options, reduced processed foods and shoppers save time, save money and provide products with lower carbohydrates. inspiration.
Integrate online and subscription models Tap into demand for food-to-go and Online solutions will take more share in evening meals future. Understanding which categories With post-millennials more likely to shop for 5 and how quickly they will move online will food for now and later, respond with product help you improve the shopper experience solutions that inspire them and help them to and collaboration that fits in with shoppers’ save time shopping and cooking. preference for buying little and often.
Inspire and educate shoppers in-store Adapt your multi-channel strategy Adapt store layouts with more store-in-store With these shoppers preferring to shop more concepts, food courts and personalisation. in convenience stores, flex your product 6 Install more digital solutions to share meal range and format to appeal more to these and recipe suggestions, product heritage and shoppers. Address their concerns with quality credentials. shopping in larger stores.
Our consideration checklist 22 About The Consumer Goods About IGD Forum
The Consumer Goods Forum (“CGF”) is a IGD is a research and training charity, global, parity-based industry network that undertaking research for the benefit of the is driven by its members to encourage the public. Our reach is global, with experts global adoption of practices and standards based in the UK, Singapore and North that serves the consumer goods industry America and more than 1,000 corporate worldwide. It brings together the CEOs and members and their subsidiaries across 40 senior management of some 400 retailers, countries. manufacturers, service providers, and other stakeholders across 70 countries, Our in-depth understanding of shoppers, and it reflects the diversity of the industry in international retailing, food-to-go and supply geography, size, product category and format. chains is supported by our deep knowledge Its member companies have combined sales of the broader topics affecting the industry of EUR 3.5 trillion and directly employ nearly – the skills required for the future, health, 10 million people, with a further 90 million nutrition, sustainability and economics among related jobs estimated along the value chain. them. It is governed by its Board of Directors, which comprises more than 50 manufacturer and We offer a unique blend of best practice retailer CEOs. knowledge, practical commercial experience and passion for people development. For more information, please visit: www.theconsumergoodsforum.com Our team of 150, including industry experts, trainers and facilitators, have extensive Contact experience in creating and delivering a range Ruediger Hagedorn of customised solutions across: +49 171 693 5583 [email protected] • Category management and shopper insight • Commercial and account management • Retailer and channel strategies • Future supply chain and building capability • The future of retail, stores and categories
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