Get Real, Get Personal

In stores of the future, retailers will go above and beyond to personalize the experience for shoppers.

But exactly what the personalization will look like will vary from store to store.

Some retailers might carve more space for click-and-collect orders, while others might not offer click-and-collect at all in the future, and instead renew their focus on differentiated products and service.

Retailers also will experiment with new business models, particularly around online order fulfillment, the local foods movement and restaurant-style eateries inside the store.

"Retailers have been forced...to provide lots of different ways for people to purchase, whether it be in the store, or through delivery. Having been forced into it, they're trying to be smarter about what they do when customers come into the store now," says Matt Robinson, product marketing director at Symphony EYC in London. "There's a real sense of people wanting personalization. It's a common trend within the market."

Personalization often involves information, and experts predict retailers will respond to consumers' desire for more readily available information with improved in-store signage and digital messages that engage shoppers.

Channel shift, the shopping behavior resulting from increased channel blurring, could accelerate over the next decade, affecting how new grocery stores are designed and the way products are merchandized, with some retailers expanding into pharmacy and wellness and others focusing on winning market share from the meals-to-go category.

"Retailers continue to expand their perishables and foodservice offerings to differentiate themselves," says Craig Rosenblum, partner at Willard Bishop, who expects grocers' expansion into foodservice to continue in the future.

The big surprise could be a reversal in the flat to declining sales for traditional supermarkets, if retailers are effective at presenting more of what consumers increasingly are clamoring for–restaurant-quality entrees, salads, sandwiches, sushi and freshly prepared baked goods in a convenient format at affordable prices.

Improved merchandising and signage will be one way for food retailers to engage shoppers.

Within the traditional grocery category, fresh format stores are positioned for 12 percent growth by 2019, while the limited format category, which includes no-frills players Aldi and Save-A-Lot among others, is positioned for 7 percent growth by 2019, according to Willard Bishop's "The Future of Food Retailing 2015." Traditional supermarkets, which represent the single largest category, will see share decline to 37 percent from 39 percent in 2014, according to Willard Bishop, but the report doesn't take into account the possibility of retailers nabbing share from restaurants.

Retailers also will continue to add upscale proprietary products. Kroger's premium private label products, including its Italian foods line, HemisPheres, launched Oct. 1, are positioned to attract a loyal following, says Harshal Patel, founder of TradeScribe, on Seeking Alpha. They also offer the retailer higher margins than many branded products. Kroger's same-store sales have been growing at more than 4.5 percent, triple the rate of Walmart and double the rate of Target's growth over the past 12 months, Patel said on Seeking Alpha.

Many retailers also intend to offer personalized promotions by mining point-of-sale data expeditiously and using digital technology to present more information to consumers in the aisle or when they are making their digital shopping lists for online ordering.

Still, experts point to growing pressure to offset e-commerce's potential to pull customers out of the store. "Most customers want to be in and out of the store as quickly as possible, and retailers want them to be in longer–the longer [they're there] the more opportunity for them to purchase," Robinson says.

In its 2015 report, "Navigating the New Digital Divide– Capitalizing on the digital influence in retail," Deloitte debunks some of the current hype about the rapid growth of e-commerce, particularly in grocery. "Simply measuring channel sales misses the larger trend. How a customer gets inspired and informed to buy shoes may differ greatly from how he or she buys groceries or electronics," the report says, noting that food and beverage is the category with the least amount of digital influence.

Except for millennials, most consumers haven't shown a strong desire to shop with their smartphones for groceries. "Grocery customers are least influenced by digital overall, and they also tend to do less pre-shopping before arriving at stores than shoppers in other categories. In general, higher-frequency shoppers tend to use digital more often; however, grocery shoppers demonstrate the opposite behavior," the Deloitte report says.

The numbers could be a blessing in disguise for grocers with significant investment centered on brick-and-mortar locations, and many are tweaking their business models to shore up their core value proposition.

Overview of Dollar Share (2014 versus 2019 est.) Source: "The Future of Food Retailing 2015," Willard Bishop

The bigger opportunity could be in stealing share from restaurants, and some grocery retailers already appear to be succeeding. "It's not a zero-sum game," said John Mackey, co-CEO of Whole Foods Market, in a fourth-quarter conference call with analysts Nov. 4. Whole Foods has increased its focus on restaurant-style takeout foods and expanded its in-store dining areas.

"We are operating some of the highest-volume restaurants in the country, and no house brand comes close to the quality standards of our exclusive brand products," he said. "Totaling close to $5 billion, or one-third of our sales, our exclusive brands and prepared foods are key differentiators for us, and we plan to partner with our suppliers to widen our competitive advantage in these areas."

The new 53,000-square-foot Whole Foods Market location that opened July 29 in Evanston, Ill., includes several in-store dining areas, including a wine bar, coffee bar and juice bar. Shoppers stopping in for dinner ingredients can choose from far more options than most restaurants provide, with several salad bars, a bakery, and deli area offering sushi and prepared entrees. For dessert, besides the well-stocked bakery, the store also offers a cookie bar where shoppers can serve themselves and pick from a selection priced at $11.99 a pound.

Besides Whole Foods, Rosenblum of Willard Bishop says that Lowes Foods, Price Choppers, Fairway Market and Northgate Market, along with many convenience stores, are increasing their food-to-order areas in another show of personalization. "In some cases, it has become such a prominent part of the business they have opened up free-standing restaurants," such as at Lunds & Byerly's, Rosenblum says. Lunds & Byerly's Kitchen is a 17,000-square-foot eatery in Wayzata, Minn., offering made-to-order sandwiches, sushi, and heat-and-serve entrees, along with a charcuterie of Italian meats and an extensive salad bar.

"It's all about food consumption share of wallet, whether at home or away from home. It's not as much stealing share, but preventing the shopper from feeling like they need to go" to restaurants, Rosenblum said.

If grocers can attract consumers who otherwise would patronize restaurants, tomorrow's grocers will have effectively unlocked a market that their predecessors had taken for granted and let slip away. Consumption of food prepared away from home represented 43 percent of all food spending in 2012, up from 26 percent in 1970, according to the U.S. Department of Agriculture's Economic Research Service.

LOCAL FOODS

In a similar trend, local food has become a "central growth driver" for grocery retailers, according to an Oct. 26 report from A.T. Kearney, which indicates 78 percent of consumer respondents say they would be willing to pay a 10 percent premium for local food, up from 70 percent in 2014.

"Forward-thinking retailers and restaurants with a distinctive definition of local, and a focus on marketing and merchandising fresh, high-quality products at the right price, will capture a long-term advantage in this growing market," Randy Burt, co-author of the report, said in a release. But consumers' definition of local also is narrowing, with 96 percent of respondents agreeing "local" means grown within 100 miles of the point of sale, compared with 58 percent in 2014.

While the local foods trend has been stifled by a lack of available locally grown produce in some markets, BrightFarms, which grows produce on-site or nearby retailers, predicts demand will continue to grow as supply becomes more available.

"Consumers in America want food that is fresher, healthier, taster and–especially–locally grown and trusted," said Paul Lightfoot, CEO of BrightFarms. "Therefore, the most successful food retailers are continuing to expand fresh and local produce, and this trend will continue to gather steam as millennials have more kids and increase their buying share of the retail market."

As mobile apps and in-store beacon technology improves, retailers will push willing consumers through the path to purchase with personalized promotions sent to their smartphones. But what's personal in a positive way to one shopper might come across as impersonal and big brother-like to another, Robinson says.

As an alternative, Robinson suggests retailers equip staff members with tablets to access data on shoppers' purchase histories as well as in-stock merchandise, allowing them to offer personalized service to shoppers in the aisle. "Fifteen years ago, most store owners knew their customers," he says. "Given the scale, what retailers are trying to do is gain that one-to-one knowledge of the customers again."

Freelance journalist Ann Meyer is a regular contributor to Retail Leader.