As customer expectations continue to change, grocery retailers can no longer avoid the imperative to move online. Lisa Koetter, a partner with Bain’s Retail practice, discusses five things traditional grocers can do to stay competitive.
Read the Bain Brief: Grocery Retailing, Reimagined
Read the transcript below.
LISA KOETTER: The grocery industry is going through a period of major change. A decade from now, I think this industry will be virtually unrecognizable. On one hand, the way we shop for groceries is being dramatically redefined.
You know, convenience used to mean who had the most shops with the most hours in the most places. Now convenience means 24/7 access. It means getting that meal kit delivered to my house on Sunday night so that I don't need to grocery shop for the week. Consumers' expectations are changing. It needs to be easy for them.
Another element that is going on is the fight for your share, and our customer share of wallet is increasing. Ten years ago, we basically had just Peapod in terms of food delivery services. Now there are dozens and dozens of new entrants with new business models.
And what this means is, for traditional grocers, they need to evolve. The traditional grocers' margins will continue to get challenged as we see an acceleration toward online purchasing. Today, the US is about 3% in terms of the percentage of purchases that are made online, and that's expected to grow to 9%. But Korea's at over 20% today. So this is a continued evolution and change.
But what makes me feel optimistic for these traditional grocers is that they truly do have some of the most sincerely loyal customers, and that is a leverage point. So if I'm a traditional grocer, I'd be asking myself, "How do I need to evolve?" and actively evolving.
But there's a path to get there. There are five things that we recommend that grocers do. First, as a traditional grocer, clearly define who you are and who you want to be. You can't be everything to everyone. You need to decide if you're going to spike on the lowest prices or spike on having the best service model.
Two, you need to make sure that you take that and translate that online. Don't try to create a different business model online. It will just confuse the customer.
Three, invest in digital. It's hard. It's expensive. It's daunting. You know, the digital disruptors are investing between 11% and 12% of their revenues. A traditional grocer is spending a percent and a half. That's a big difference. And what it means is you have to pick your places. You can't invest everywhere, but pick a couple places that you can win.
Fourth, my advice is to redesign the store. Those physical stores are huge assets in some ways and huge liabilities in others. And start evolving that store. The center store needs to shrink. We need to make these zones of inspiration that customers are excited to come into and try new things.
And finally, it's to evolve your financial model. Make sure you're looking at it holistically. You can't just look at one particular project. You need to look at the lifetime value. And by doing these things, my hope is that traditional grocers can stay in the game because the customers want them to be there and are excited to continue to shop with them.