2017 grocery retail refresh: Why Kroger, Lidl, and Walmart will have a bigger impact than you think

December 18, 2017; 00:01 am by Bill Bishop

2017 was an action-packed year for changes in grocery retail.  Amazon got much of the air time, but three other events will likely have far more profound impacts on the future of food retailing: Lidl's entry energizes Aldi, Kroger’s embrace of data and science, and Walmart’s vision for “storeless” retailing. Don’t underestimate how these three changes will accelerate the challenges to old habits and paths to growth.  

The good news is that every retailer and consumer packaged goods company has the opportunity to “go to school” on these areas so they’ll have a solid foundation for visualizing what they want to be in the future.

Time to refresh and put the big 2017 changes into context

Here are the three big events and what's next.

1. Energizing discounter competition

Lidl’s entry into the US market

The opening of the first Lidl stores in the US generated mixed reaction, but their arrival has already triggered a major impact:  It prompted Aldi, the “original” German hard discounter, to make a five-billion-dollar commitment to open new stores and remodel existing ones. The next-round impact of the duel between Aldi and Lidl expands the appeal of the hard discounters to a broader range of shoppers and more than doubles their market share.

This hard-discounter super duo brings new merchandising and operating practices and proves that:

• It is possible to meet the needs of a growing number of households with stores that are considerably smaller than the typical supermarket and carry only a fraction of the products.
• Consumers are attracted to “next generation” private label products that, unlike the current generation, offer innovation and high quality in addition to cost savings.
• A distribution and operating model built for efficiency will significantly generate high sales per square foot and minimize labor costs.

WHAT’S NEXT? The growing presence of hard discounters in North American markets makes it difficult for traditional retailers and CPG brands to grow and will ultimately force business practice changes for traditional retailers and consumer brands.

2. Moving to the new era of smart retailing

Kroger embraces “Data and Science” to serve customers better

Kroger’s launch of its Restock plan – which is based on using data, analytics, and research to increase the return on assets – is the first time a major grocery retailer has boldly moved to drive business improvement on facts versus intuition and experience.

Retailers and consumer products companies will want to watch how Kroger applies advanced analytics to improve profitability by:

• Optimizing shelf space to make the assortment more closely match customer needs in a given market, and reducing the number of products that need to be subsidized to achieve category profitability. 
• Improving promotional effectiveness by pricing all promoted items with consideration for the way each affects the rest of the business, i.e. how much the promotion encourages – or discourages – the purchase of other products.
• Personalizing communications.  Kroger’s goal is to use analytics to optimize personal communications/promotion plans to reflect how each household uses different media – both traditional and online – so that the customer is getting the message the way they want to get it.

WHAT’S NEXT? Advanced analytics, especially artificial intelligence, will enable breakthrough applications that usher in a new era of smart retailing that improves profitability by better aligning the retailer’s offer with customer preferences. Long term, retailers will broaden their use of analytics to improve other dimensions of business performance.

3. Exploring “storeless retailing”

Walmart pushes the conversation to the next level

As households shift more of their grocery buying/spending online, retailers are looking ways to make for delivery more efficient, and consumers are looking for more secure and easier ways to take the hassle out of receiving an order.  This is not easy to do, but that could change.

The patent filed recently by Walmart lays out one vision of how this could be achieved: Products would be shipped to the consumer’s home ready to be “purchased” by that household when they want/need them.  Whether or not you like the execution Walmart proposes, the idea has big potential for streamlining the buying and delivery process. This conversation isn’t over by a long shot. In 2018 and beyond, look for:

• More innovative “work-arounds” that get deliveries into the home will be auditioned. Some will be made from the store and some from the workroom.
• Large companies like Walmart and Amazon will implement delivery fulfillment models. These big retailers will likely adopt something that resembles the patent, and be joined by food distributors who will see it as one of their shrinking number of growth options.

WHAT’S NEXT? The transition to “storeless retailing" will take time and ultimately won’t be for everyone since significant investment will be required to install the storage and transfer capabilities in each home. This will be especially important for higher income households who are constrained more by time and money.