"There are so many definitions of collaboration, and they're mostly about buyer and seller transactions. But in today's world that is not enough. Collaboration is moving more and more toward trading partner relationships," Thom Blischok, chief retail strategist at Strategy& (formerly Booz & Co.), says.
According to Blischok, CPG trade and promotion funding is a $50 billion-plus business, yet trade deals alone "haven't really moved the needle with regard to consumers.
"To grow business, companies have to be much more aligned on go-to-market capabilities such as shopper targeting, effective pricing, packaging architecture, tailored assortments and new product innovation," he explains.
While myriad issues come into play, three trends are among those impacting collaboration today: changes in consumer demographics and shopping habits; increased competition from multiple types of retail outlets; and the availability of new technology. All three are trends retailers and their trading partners must consider when creating collaborative initiatives that ultimately will drive sales and profits.
1. The Consumer
"I'm all about the shopper."
In five short words, Blischok gets to the heart of perhaps the most significant trend influencing collaboration throughout the grocery industry.
"Gone are the days of, 'We're going to build the biggest store,'" Blischok explains. "That is still happening, but changes in customer behavior will become key competitive advantages going forward."
Forming collaborative relationships to address those changes is key to food retailing success, according to Mark Baum, senior vice president of industry relations and chief collaboration officer at the Food Marketing Institute (FMI).
"Consumers are more diverse than ever. They are more inscrutable, harder to find, and harder to please. They want involvement with companies they are doing business with," Baum says. "We also live in a more polarized society, with a smaller middle class. That impacts how stores position themselves in the marketplace. Should they be value-driven and price-sensitive or have an upscale carriage that appeals to sophisticated consumers?"
"The biggest challenge today is to understand disposable income availability of shoppers," Blischok adds. "Sixty-five percent of consumers are 'survivalists' living paycheck to paycheck, and 35 percent are selectionists."
Selectionists, he explains, are shoppers looking for more than the basics and consequently are apt to buy high-end, artisanal products.
"What this translates to is that we must rethink collaboration strategies in this ever more complex retailing environment. Tuning the shopping experience to the disposable income of the shopper base is critical," Blischok says.
The changes, and the collaborative challenges they bring, go beyond economics, Baum notes.
More than 40 percent of men, for example, report having responsibility for grocery shopping. How can retailers and their trading partners appeal to male shoppers, considering that the design, inventory and product placement at most businesses currently are geared toward female shoppers?
The act of having a meal is more impulsive and spontaneous than ever, especially for millennials. According to FMI's U.S. Grocery Shopper Trends 2014, 25 percent of all meals consumed by 20-somethings include items purchased the same day–which means millennials shop by meal. "How should you cater to that as a food retailer?" Baum asks. "In essence there are 21 meal occasions over one week, plus snacking–how are you going to capture those occasions?"
Collaborating on cross-promotions and merchandising strategies that create entire meal solutions, coupled with a video about how to prepare the meal, is one way to attract customers seeking convenient, spur-of-the-moment dinner options. "Shoppers don't have to go up and down each aisle because everything is bundled in nice, neat packages. This is a non-linear, non-traditional way of looking at the in-store experience," Baum says.
Consumers' growing interest in health and wellness is also opening new paths to profit. "We believe, as a result of the Affordable Care Act, there will be up to 30 million new consumers looking for health care products and services for the first time–that is a $3 trillion jump ball!" Baum says. "Since grocery stores are already selling food, using [in-store] pharmacies in conjunction with in-store dietitians, nutritionists and inventory to build a health care platform is a huge opportunity. Education and service components are part of collaboration, too."
Finally, shoppers expect more personalization and customization than ever before. "Consumers know what they want, where they want it and when they want it," Baum says. "Retailers and manufacturers must get together to create personalized shopping experiences to optimize the experience in-store."
2. The Competition
Grocery retailers today face more than heightened expectations from shoppers; they face increased competition from multiple outlets, as well.
"This year, 9 percent of shoppers indicate that they have no one primary store–triple that of the past few years," says Baum, citing data from FMI's U.S. Grocery Shopper Trends 2014 report. "Shoppers are willing to cherry pick–they shop more formats more frequently, and are less likely to seek a one-stop shopping experience."
In the past three months, for example, millennials shopped an average of nine different stores, compared to the baby boomers' average of six stores, according to "Engaging the Evolving Shopper: Serving the New American Appetite," a new IDDBA-commissioned study conducted by The Hartman Group.
Competition is projected to become more intense in the coming decade.
"Within the next 10 years, it is estimated that grocery categories–including mass merchandisers, clubs and dollar stores–will add 290 million square feet of space," Blischok says, noting that further channel fragmentation will come courtesy of digital platforms. "By 2025, it is projected that more than 10 percent of all grocery categories will be shopped online."
To succeed in this increasingly complex environment, Blischok says manufacturers will have to understand where the growth is at retail, both online and offline. "They'll need to make necessary tradeoffs on shopper marketing, trade promotions, sales force, innovation and overall investments," he says. "They will have to understand where products are resonating within the channel, then work with retailers to make the right investments. And they will need to make every investment count."
3. The Technology
As the grocery industry evolves, retailers and manufacturers alike will continue to confront the challenges inherent in operating in an omnichannel world. How can all parties collaborate seamlessly when dealing with brick-and-mortar stores, desktop and laptop computers, tablets and the almost ubiquitous smartphone? Technology, Baum says, is the answer.
"We believe information technology will become the new currency in the business going forward," Baum says. "Increasingly for retailers and suppliers, an information warehouse, and the ability to extract information [from it], is as important as the products in the physical warehouse."
Technology deployed between trading partners, for example, can help ensure plan-o-grams are set properly, monitor in-store promotions in real time, identify what is causing out-of-stocks, identify each consumer's shopping habits, and tailor promotions to individual shoppers–all things than can help personalize and optimize the shopping experience.
Big data also can help businesses make better decisions, Baum notes. "Manufacturers and retailers can get together and use data to enhance the merchant's ability to improve category margins and do better forecasting," he says.
Ultimately, no matter what trends are driving collaborative efforts–today or in the future–it all comes down to satisfying the customer.
"Collaboration strengthens customer engagement and helps build better brand equity," Baum stresses. "It leads shoppers to think of a store not just as a place to buy food but to turn to for services, too. It makes them think of a store as a trusted advisor to make their households better."
"Strong collaboration is two companies working together to understand, to anticipate and to predict change."
"Strong collaboration," echoes Blischok, "is two companies working together to understand, to anticipate and to predict change. Collaboration takes on not the mantra of the deal, but the mantra of differentiating the shopping experience."
Collaboration and Out-of-Stocks: Missing the Mark?
Tom Cadell, executive director of the World Alliance for Retail Excellence and Standards, has a unique take on technology as it relates to out-of-stocks.
"All the technology in the world is great, but you still have to have someone putting products on the shelf. And that is not happening," Cadell says. "There is a 22 percent out-of-stock rate, and all the technology isn't working to address that. Nobody is planning what success looks like for eliminating out of stocks."
According to Cadell, technology has eliminated labor–a move that has helped save money but also has inhibited getting products to the store floor. "Where is collaboration in ensuring products are on shelf 24/7?" he asks rhetorically. "The task of stocking falls predominantly on the retailer, but there aren't enough man hours in-store [to handle the task]," he says. "It's the missing link."
No matter who is responsible for ensuring shelves are full, understanding why out-of-stocks occur and figuring out how to utilize resources to solve the problem is key.
"When you're blocking and tackling at retail, there has to be collaboration," Cadell says. "As a retailer you own the brick-and-mortar store, so it is your job to keep products in stock. You have to figure out how to work through that–who is doing what, who is accountable, and what are my tools for getting the job done?
Cadell believes there is room for improvement in collaboration between retailers, manufacturers and third parties, including brokers, in-store service companies and merchandising companies.
"You have to work across the aisle because nobody has all the answers," he says. "It's time to decide: Do you want a brick-and-mortar store? If you do, you need to improve out of stocks or close!"