5 Shocking Future Trends

5 Shocking Future Trends for Growing Grocery Stores!

Everybody eats – the act of buying food will never go away – but how we buy food will certainly evolve. The future of shopping will focus more on customer experiences.

This doesn’t necessarily mean a robotic cashier-less check-out process, but an experience customers want to have. The future of grocery is all about customer-choice – giving customers the options they want at every stage of their lives.

The grocery store of the future will be much more focused on experience than just things. Customers won’t choose the store because of the products; they’ll choose it because it offers a convenient or beneficial experience.

It will be a place where customers come to learn about their food and experience it in new ways instead of just buying it. That means stores will offer things like cooking classes, wine tastings and restaurants.

Let’s now follow five powerful trends that will shape the industry’s transformation in the United States. Understanding them in 2021, could help grocers of all sizes chart a course to profitable growth in the new, much more competitive environment.

Trend 1: Rapidly Expanding E-Grocery Stores.

Until relatively recently, shoppers’ grocery options were limited to what was available at their most convenient brick-and-mortar store. Today, tens of millions of Americans can shop for groceries online, where their options include curbside pickup and home delivery. Many formidable players are now competing for e-grocery dominance.

Amazon’s acquisition of Whole Foods Market in 2017 gave the e-commerce giant new credibility in fresh grocery and allowed the expansion of immediate Amazon Fresh service to new markets. Instacart, which launched in 2012, has expanded rapidly and can reach more than 80 percent of US households.

In response, many traditional grocers are rapidly expanding their online operations (Exhibit 1). For example, Walmart has been expanding its online-order offering, with same-day delivery from 1,600 stores and pick up from 3,100 locations as of November 2019. 7 Kroger has expanded its pickup locations for online orders to 1,900 locations and offers delivery of online-ordered groceries from 2,300 locations.

Trend 2: Fast Home Delivery Service.

The grocery market is supply driven, and consumers don’t yet know what they want. Like grocers, shoppers can’t predict exactly what the future will bring. Not surprisingly, most first-time online customers expect to get their groceries more seamlessly than when going to the store themselves. But many can’t imagine all the options digital grocers might offer.

Indeed, the offerings themselves are now shaping customer expectations about each element of the experience, including the type and speed of service—which will evolve as quickly as the offers do.

Recall, for example, Amazon Prime’s introduction of free two-day shipping. Customers may not have been clamoring for it, but it has transformed their expectations across a broad range of industries. Nontraditional grocery players, such as Amazon and Instacart, are now shaping the market in a similar way—for example, by offering immediate grocery-delivery service in major metropolitan areas across the United States. Recently, Walmart announced free one-day delivery.

Other changes also seem to be taking hold:

Order tracking and delivery-slot notification. Instacart has raised the bar for communication, offering driver-to-customer updates and committing to specific delivery windows to reduce the time customers must wait at home for orders.
Expanded assortment. As the lines between digital- and physical-shopping experiences blur, so do the lines between general retailers and grocers. Many customers are seeking the convenience of ordering everything they need, whenever they need it, from a single platform in a single order.
Online and in-store price parity. Many grocers have been able to charge a premium price for online-basket items, but we may see a push toward a more transparent pricing model. While many retailers have used online price-matching policies, the jury is out on whether the reciprocal will hold. Currently, Walmart does not match in-store prices, while Target does.
Low per-order fees and attractive subscription models. With the influx of competition into the market, customers can take advantage of various offers, including percentage-off promo codes and free delivery on the first order, at sign-up. To retain customers, these promos may transform into everyday low fees.

While convenience attracts most first-time customers to online ordering, it may not keep them coming back. Some regular online grocery shoppers are citing a pain point of falling into a “grocery rut” because of automated ordering of the same basket again and again. Some miss the sensory experience of shopping in person and feel that they miss out on discovering new ingredients, different meal ideas, and good values.

Trend 3: E-Grocery Economies of Scale.

Demand density—or orders per square mile—in the United States is significantly lower than it is in European countries, particularly the United Kingdom, which has long been at the forefront of online grocery.

The relatively low e-grocery penetration of the United States (around 3 to 4 percent versus around 7 percent in the United Kingdom), coupled with lower population density, creates a significant challenge for grocers and rewards those that have scale. Making matters more challenging, customer demand is fragmented between delivery and pickup, and various delivery speeds each require a different last-mile model.

Where demand density is low and demand is fragmented, investments in large fulfillment centers, delivery fleets, and drivers are hard to justify. It can be impossible to cover the costs without adequate demand within the serviceable radius.

Recognizing the challenges, some major grocers are using their stores as fulfillment centers, getting more value from existing assets rather than making new investments (Exhibit 2). After Amazon acquired Whole Foods Market, for example, it announced that it would fill orders from Whole Foods Market stores.

Target and Walmart now offer e-commerce fulfillment at store locations and last-mile delivery through the acquisition of Shipt and a partnership with Postmates, respectively. They are also finding that integrating e-commerce fulfillment and retail-store operations can improve employee utilization, since staff can fulfill electronic orders when in-store customer traffic is low.

Trend 4: Grocery Store Automation.

The two pillars of e-commerce fulfillment—picking and last-mile delivery—add significant operating costs to an already low-margin business, so we expect large grocers to turn to automation and robotics. Technology advancements could help level the playing field, but you need scale and demand density to justify the heavy up-front investment.

Picking automation is already well under way. Amazon purchased Kiva Systems for picking-center robotics. Ocado has automated grocery-fulfillment centers in the United Kingdom and partnered with Sobeys and Kroger to automate picking centers in Canada and the United States, respectively. Kroger has also forged a partnership with Cimcorp to bring an automated storage-and-picking system to its dairy facilities.

Automation is also coming to last-mile delivery. The dawn of driverless-vehicle and drone deliveries will scale only after regulations are in place. These technologies are also hindered by a need for the recipient to be home at the scheduled time of delivery.

That said, they are evolving rapidly, driven by start-ups and old-school players, such as auto manufacturers—autonomous Ford vehicles are already delivering Domino’s pizza in Miami, for example. Here, too, adoption speeds may exceed expectations by wide margins.

Trend 5: Best Recruitment Practices.

Nearly every major industry, from insurance to mining, is struggling to recruit and retain digital talent, given that demand currently outpaces supply. Large tech companies and hot start-ups continue to have the first pick of data scientists, tech engineers, robotics and artificial-intelligence experts, scrum masters, full-stack architects, and a host of other technical specialists.

We believe that is a major issue, since digital talent may be the single most important determinant of a company’s likelihood to succeed in the grocery market in the next few years. Any strong talent strategy begins with retaining and training existing talent, of course, as well as uncovering latent talent already in the business. But to compete with the recruiting capabilities of large technology companies, grocers should take several additional steps:

Hire a chief digital officer or the equivalent. A chief digital officer’s vision and business and technical knowledge can lead a digital transformation across an organization.
Form positions for data scientists, tech engineers, and other experts. These are critical roles that will create value.
Develop a clear digital strategy. A digital strategy at the core of the overall business strategy is key.
Break out from the rest of the organization and rethink location strategies where required. This type of transformational reorganization—a powerful signal that real change is under way—can help attract talent.
Reconsider traditional recruiting practices and look beyond brand-name universities. Innovative recruiting activities—for example, by hosting “hackathons”—can help attract digital talent. Local colleges may be producing superb graduates who would like to stay close to home, providing a rich talent resource.
Offer more of the benefits millennials seek. Millennials look for offerings such as development opportunities, extra flexibility, telework, and—perhaps most of all—a sense of meaning and purpose.
Create an innovative environment. A culture that rivals those of the big tech companies and the smallest start-ups includes an openness to risk taking, team-based ideation and solution building, clear career paths, and compelling performance recognition.
Prepare to pay market rates and reward employees for attracting talent. Attracting and retaining top talent will require grocers to offer competitive and compelling pay and incentives.

Conclusion - What it Takes to Win in E-Grocery Stores?

Online grocery on its own is not new news to retailers and the broader consumer community, but the current pace of investment and innovation is unprecedented. We believe that this will continue to be a supply-driven market, meaning that the actions retailers and other players in the grocery ecosystem take now will define what the industry becomes going forward. Consumer expectations are higher than they were even a year ago, but they are still being set. Here are a few suggestions for leaders striving to win in e-grocery:

Set an aspirational vision for your customer proposition using a data-driven fact base. Determine the core elements and differentiators of your Omni channel grocery offering and root them in a customer promise that you are prepared to deliver (such as fee structures, pricing models, and assortment choices). Leverage techniques such as conjoint analysis and ethnographic research to inform the value proposition.
Build a robust demand-forecasting model for your current and future markets. Project market demand for your trade areas and forecast your potential share. Geospatial-analytics techniques should inform your demand modeling and your optimal mix of click-and-collect versus delivery offerings.
Determine your optimal fulfillment model, which is likely to be bimodal. Explore the range of picking technologies available in the market and choose one or more that best suit your customer proposition and demand economics. Perform the same analyses when choosing delivery speeds and transportation models.
Design your tech stack and prepare your IT systems. Build the IT plan that underlies each element of the customer proposition and select which vendors you will work with (most grocers won’t have this capability on their own). Having a flexible technology stack that supports an agile operating model is key.
Modify your organization and operating model to embed digital at the core. Align on a reporting structure for the e-commerce team (for example, using Omni channel or separate merchants and having dedicated or pooled labor in stores) and agree on decision rights and ways of working. Robust human-capital and talent plans and strategies will be necessary.