Optimizing essential retail: How brands and retailers that became the most important during the pandemic can continue to shine now

Download a PDF version of this month's report at the bottom of the article. Let's set the scene... Exactly three years ago this month, consumer behavior as the retail industry knew it faded away. What was left was a consumer base that was frightened, cautious, in need of comfort and distractions, and indifferent to many retail categories. Keeping family and friends safe became top priority, and shopping trips were defined by how quickly consumers could execute purchases with the fewest number of in-person interactions. However, certain sectors of retail also became sources of normalcy and joy despite the trepidation and at times logistical challenges of shopping in stores: grocery, drug, convenience and other retailers deemed essential. Essential retail became a general term describing what retailers were allowed to remain open in the early days of the pandemic. It also signified the role that retail would play in helping consumers navigate challenging times and provide essential goods and services. Despite long, distanced lines and product shortages, many consumers saw their weekly grocery trip as a source of joy or return to normalcy, even with the backdrop of the pandemic. Essential retailers benefited greatly from remaining open during the pandemic and were able to capitalize on new consumer behaviors like preparing meals at home instead of dining out. And, even as consumers returned to pre-pandemic lifestyles during the past three years, many behaviors tied to essential retail demand remained. But essential retail is now at a crossroads. During the past year, inflationary price increases, changing consumer needs and the return to focused retail sectors have all diminished the shine of the once most important retail sector to consumers’ daily activities and wellbeing. Keeping shoppers engaged with a channel that many associate with the height of the pandemic is a challenge alone, but supply chain challenges, tightening wallets and exponential e-commerce growth have all changed the way that essential retailers do business today. According to RetailGeek, grocery sales, adjusted for inflation are down 4% compared to last year, even though volumes are still above the pre-pandemic period. While attracting and retaining consumers in a retailer’s ecosystem is undoubtedly challenging, essential retailers have always been on the cutting edge of providing value, convenience and experience to consumers, even if it often goes unnoticed. So, how can essential retailers optimize the retail experience and maintain the joy of shopping for consumers? Many retailers are investing in technologies, experiences and messaging today that will set them up for success in the years to come as the pandemic period becomes more of a distant memory. It’s also imperative to understand changes in consumer sentiment and behavior to meet the needs of this “new” normal. Ultimately, innovation, agility and a strong brand value are all critical for essential retailers to perfect in order to keep consumers coming back and loyal in the days, weeks and years ahead. The value chain When looking at how to optimize the essential retail experience for consumers, the most common points of entry are providing convenience and experiences to consumers. And, during the past few years, retailers haven’t had to as heavily rely on providing value as a key part of the retail equation for consumers. This was partly due to changes to the consumer lifestyle, the increase in perceived personal wealth and the need to shift behaviors from out-of-home to in-home. Retailers were in demand, and consumers were far less price sensitive. However, much of that has reverted back to “normal” for consumers as credit card debt climbs, student loan payments are set to restart and savings dwindle. As mentioned in one of Retail Leader Pro’s 2023 predictions, even high-income shoppers are beginning to shift their spending mindset into one focused around saving. According to the National Retail Federation, two-thirds of consumers with household incomes greater than $100,000 are seeing savings dwindle, putting more pressure on their weekly budgets for essentials such as groceries and household items. One of the most apparent “shifts” has been consumers once again looking for lower priced retailers or easily communicated value. According to Attest, 50% of consumers reported switching to cheaper brands and 33% switched to cheaper stores last year to reduce grocery spending. The retail industry has always been focused on value, but it has not always been prominent in its messaging during the past few years. Discount retailers, in particular, have seized this opportunity to entice new shoppers. According to Coresight Research, one in five shoppers reported buying groceries from the dollar store channel. Dollar stores have increasingly become major players in the grocery space, which has come at the right time for many consumers looking for increased value at retail. Statista reports that Dollar General is predicted to grow 21% by 2026 compared to 2021, reaching $31.5 billion in sales. Discount retailers have clearly defined value propositions that are easily identifiable, but in order to optimize essential retail in the future, communicating value is critical to success in the short term. Many retailers in earnings calls, including Target, have expressed that they are are working to price products in lucrative lower price bands, such as less than $5, $10 and $15, to make promotional shopping easier. Still, it’s not just about the value of products and retailers. It’s also about showcasing that value to consumers in new and exciting ways. Heavily featured at EuroShop 2023, instore digital signage, which expanded during the holiday season, continues to be rolled out at more retailers across North America. Digital signage allows the industry to showcase savings clearly to consumers, while also providing more context and education around the purchase. The value marketed through digital signage doesn’t have to be exclusively represented by lower prices. Digital signage also can be utilized to express overall quality and features and to evoke associated emotions. Providing more granularity about the purchase overall through digital signage can help communicate the value in a visual way that also provides agility. Retail media programs are also avenues to explore personalization and value communication on the digital shelf. Marketing to consumers in the moment using retail media and online research brings value to the fingertips of consumers as they shop. Retailers are innovating in how they connect loyalty to promotions, which can increase conversation and help them define what value means to consumers over time. It’s about getting smarter with the tools at the retail industry's disposal. Finally, value can come through in the types of products and brands in which consumers engage. Private label is a no brainer here. Retailers have emphasized the importance of private label programs as the consumer faces economic uncertainty, with Target planning to launch 10 new brands in the near future. According to Numerator, one in three promoted products are private label as of February 2023. And, from the same reporting, in January 2023, private label promotion share was 10 points higher than in January 2022. Private label aligns clearly with the value proposition of many retailers, as they look to increase quality and pack size without sacrificing on price and promotions to consumers. Mass and drug retailers also are leaning heavily into lower-priced categories such as mass beauty products to attract buyers away from prestige brands. Target’s collaboration with UltaBeauty showcases the value that can be derived from additional product education and enhanced selection of products within Private label aligns clearly with the value proposition of many retailers, as they look to increase quality and pack size without sacrificing on price and promotions to consumers. Mass and drug retailers also are leaning heavily into lower-priced categories such as mass beauty products to attract buyers away from prestige brands. Target’s collaboration with UltaBeauty showcases the value that can be derived from additional product education and enhanced selection of products within a certain price band. Drug stores have benefitted from the increased knowledge and virality of drug-store beauty “dupes” of prestige brands that originate from TikTok as highlighted in February’s Retail Lowdown. Optimizing value in today’s retail environment is paramount, and in the short-term it should be where retailers and brands are investing marketing dollars. As the essential retail sector grapples with maintaining the joy and comfort of shopping this channel, value is a pillar that can help offset changing consumer lifestyles and needs. Consumers will always go where value is clear. Clearly, communicating value, while also offering products and solutions that fit the model, is likely to help retailers and brands attract and retain shoppers in the post-pandemic slowdown across the industry. Keeping it convenient Prior to the pandemic, convenience was one of the largest areas of focus across the retail landscape. “Make my life easier” was a common consumer pain point that opened up many opportunities for retailers to innovate. Retailers are inherently a part of the consumer’s daily routine, and making that one occasion seamless and efficient is a never ending quest. Convenience was still important to consumers during the pandemic, but in differing ways. Consumers wanted easy shopping to lower the amount of time spent in stores, and the explosive growth of the e-commerce channel across categories highlighted the preference for a seamless and convenient shopping experience. As the consumer moves beyond those times, convenience once again evolves in its retail development. Consumers returning to the office once again need ease of shopping, particularly from essential retailers. E-commerce plays a much larger role across the industry today, and some of the growing pains of that channel expose where convenience innovation is needed. The explosive growth of the online channel — growing from 11% of sales before the pandemic to a high of 17% of sales right after lockdowns began according to the U.S. Census Bureau — created shockwaves that are still being felt today. Shopping online is clearly the most convenient route for consumers inherently, and essential sectors like drug, c-store and grocery have benefited greatly from that behavioral change. However, it’s also true that essential retail lagged behind general merchandise in the sophistication of online fulfillment. Many essential retailers are grappling today with the choice of working with a third-party e-commerce solution, like Instacart or Doordash, or investing in firstparty online solutions. While Instacart has long been the staple in this area, Doordash is quickly pitching retailers to look for new pockets of growth. Doordash reported that in the fourth quarter of 2022, their grocery and convenience business grew 60% compared to 2021, and that its grocery sector has doubled year over year for the last two quarters. Grocery and essential retail is the final frontier in terms of e-commerce innovation, and the battleground is growing for who can create the best long-term solution. Convenience of errand-type retail occasions is deeply rooted in the need for more expansive e-commerce and click-and-collect options. Retail technology is ingrained in optimizing convenience at retail, and essential sectors have been on the cutting edge of these developments. According to Statista, retail technologies have improved the consumer shopping experience, particularly through tap-to-pay methods and branded mobile apps. The c-store channel, in particular, has embraced technology from both the operations and consumer lens. 7-Eleven has rolled out autonomous-delivery vehicles in the Los Angeles market to deliver snacks and drinks on demand, and has also debuted electric charging networks through its 7Charge app. C-stores creating smart solutions to get products into consumers hands more easily and also adapting to changes in consumer lifestyles to encourage visits is best-in-class across the broader retail industry. At EuroShop 2023, cool and frozen lockers for buy online, pickup in-store orders were on display, which can enhance the convenience of ordering online and knowing that food safety, freshness and quality are all still high. Giving consumers as many retail fulfillment options as possible while ensuring quality is critical for the essential retail sector that caters to consumers on the go. Finally, convenience is an initiative that must align with the full 360 degrees of the customer retail experience. With that, not only is e-commerce innovation needed, but stores need to be more agile and transformable. In the U.S. market, store infrastructure is outdated across many sectors, and is more costly to upgrade and enhance in order to keep up with changing consumer needs. Store designs today need to be agile in order to evolve and adapt quickly as new technologies and innovation arrive so retailers don’t fall behind. This can be through the tech stack, fixturing and point-of-sale systems. The need for hyper-localized stores is also clear as retailers look to make convenience a point of differentiation for the consumer. The industry is far beyond a one-size-fits-all communities approach, and even regardless of small- or large-format locations, the merchandising and service mix must fit the needs of the local economy. Convenience isn’t just about one part of the consumer’s shopping trip. It’s truly the convergence of all elements of the retail experience that leave the consumer feeling satisfied. Time is more valuable than money to many consumers, and bringing convenience to essential retail is an iterative process that never ends. Experiential expectations The third pillar of today’s retail environment, and arguably the most shiny, is centered around the retail experience. This isn’t reflective of the consumer desire to spend on experiences outside of retail, but the experience when engaging with a retail brand online or offline. In the wake of e-commerce growth and the decline of traditional retail formats, creating in-store experiences and services that compelled the shopper to visit a store became a huge focal point. Essential retail, for a long time, was largely excluded from this due to low e-commerce penetration, but in a post-pandemic world, that is no longer the case. Consumers are often in essential retailers much more frequently than general merchandise chains, which elevates the need for experiences that keep shoppers engaged. According to Statista, consumers visit grocery stores on average 1.6 times per week, which has declined during the last decade. Those consumers in grocery environments more than once a week expect something new and exciting will be present with each subsequent trip. Statista also reported that Gen Z and millennial consumers are more likely to “love” grocery shopping than their older generational counterparts. The affinity for essential retail trips is high, but there needs to be a reason to come back over time. In a race to find creative experiences to lure consumers, prepared foods in essential retailers are leading the charge. Prepared foods are growing rapidly from both c-stores and grocers, and the success of these programs often help the retailer gain brand loyalty from consumers. Prepared foods at grocery stores grew 9% compared to the year prior, according to NielsenIQ for the 52 weeks ending August 2022. For regional chains such as Wegmans and Publix, prepared foods have always been a staple, but it’s quickly spreading nationwide. Similarly, c-stores such as New York-based Stewarts and others, are expanding their prepared food footprint to meet the changing needs of consumers. Grab-and-go options are fitting for consumers on the move, but they also provide an intermediate solution between sourcing food at home or at a restaurant. Prepared foods also give retailers a sense of creative expression and can help them to become a destination for consumers. Beyond prepared foods, retailers must focus on leaning into their specialty when it comes to experiences. As discussed in earlier Retail Lowdown reports, mission-driven shopping has become a prevalent consumer behavior, even if it appears to be counterintuitive. Mission-driven shopping behavior stems from consumers sourcing different specialties from particular retailers and making multiple shopping trips in order to fulfill those needs. Enhancing the retail experience can help retailers set themselves apart from each other as mission-driven shopping increases. For example, if a retailer is seen as a destination for wine and food pairings, consumers may make a special trip when they’re hosting a dinner party. Or, a consumer might seek out a drug store chain that has an extensive health and wellness offering compared to others in the area. Specialties aren’t just product focused, but can also be centered around experiences and in-store offerings. Finally, engaging with consumers in an experiential way doesn’t necessarily have to occur offline. As highlighted in February’s Retail Lowdown, the growth of TikTok’s influence on how retail trends come to market also allows for increased user engagement with brands. Retailers, even in essential sectors, are using social media to create experiences for consumers. Grocery chain The Fresh Market has invested heavily in shortform video content, which increased engagement and conversion, but it’s also expanded the brand’s ability to provide experiences such as live-cooking demonstrations with shoppers that may not have existed in the store. Building experiences for shoppers may not exist in the physical world in the future, which also opens the door for the metaverse to align with essential retail strategies. Experiences at retail take many forms, and the beauty of creating experiential offerings is that they can be personalized to individual retailers or consumer subsets. According to brand loyalty builder EagleEye, 71% of consumers want some type of personalized brand experience, but only 30% of retailers deliver on that demand. The experiential frontier is still relatively untapped by essential retailers, but as the sector that engages with consumers most on a weekly basis, the opportunities are truly limitless. What it all means Value, convenience and experience are truly the pillars of the retail equation in a post-pandemic retail industry, and the balance between the three is constantly shifting. Ultimately, in order to optimize essential retail for a new consumer, retailers will have to pull each of these levers at various times to meet the consumer where they are at any given time. The consumer holds more power over the retail industry than ever before, and by optimizing value, convenience and experience, retailers can give consumers the opportunity to be most in control of their purchasing. Product education, promotions, fulfillment options and in-store experience put shoppers in the driver’s seat. Giving consumers autonomy over their overall retail experience creates inherent trust and value between consumers and retailers, which at a time when endless options exist, is a winning formula. Creating and messaging value for consumers goes far beyond just the prices that consumers pay, but how they feel about those purchases, and what level of control they have over purchasing decisions at retail. Building convenience in every step of the retail journey must happen seamlessly on and offline, and retailers must make decisions now regarding e-commerce fulfillment and retail technologies that will determine their path forward. Retail experiences are no longer seen as additional benefits, but as core elements of the shopping and research process. Creating experiences that naturally align with the value proposition and specialty can help foster loyalty and create solutions for today’s retail consumer. Download a PDF of Retail Leader Pro's March 2023 Retail Lowdown here. About the author Elizabeth Lafontaine is the Chief Retail Analyst at Retail Leader Pro. Backed by nearly a decade of retail experience, she uncovers emerging trends in consumer behavior to help retailers and brands tap into new insights and create winning strategies.

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Download a PDF version of this month's report at the bottom of the article.

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