Retailing in the Week Ahead, Week 19, 2019

Small grocery stores have been enjoying plenty of encouragement in recent years. In countries that have imposed tighter Sunday trading bans, like Poland and Hungary, small stores have benefited from exemptions. In most other countries, small grocery stores have been opening in more and more locations, as local governments look to fill property vacancies and retailers benefit from franchising, low startup costs and a challenging environment for corner shop owners.

Most importantly, small stores have been receiving investments in two areas of note:

  1. Test & Learns on payment systems
  2. Test & Learns on eCommerce final-mile fulfilment

These test & learns rarely convert to wide-scale roll-out with a few exceptions. Dia’s partnership with Amazon in Spain is one such exception. Albert Heijn AH To Go cashless stores in the Netherlands are another. There are more, of course, but most of the test & learns remain limited tests on a small number of outlets.

There are several reasons for this, but the three biggest are that these tests do not deliver higher footfall or basket; they do not normally see a return on investment via lower operating costs in under two years, and the cost of a full-scale roll-out would be problematic not only in terms of length of time, but also operational challenges. Still, there is an upspoken reason why many retailers have not gone further: everyone believes something better is about to come along.

2020 appears to be the year that “something better” will come along. Many retailers, in fear of Amazon - specifically Amazon Go - have been attempting to create ‘zero scan’ store environments. These are stores where consumers do not have to scan individual items to purchase and walk-out of the store. The Kantar team in London had the chance to observe one of these last week across the street from J. Sainsbury’s head office at Holborn Circus. The Albert Heijn loyalty card ‘tap & go’ is also an interesting solution that appears to be expanding quickly. Here is a link to our blog post on Sainsbury’s checkout-free test store in case you missed it.

This is all very exciting. However, the main challenge retailers face when convincing A-Brand suppliers to come along for the ride on all these tests are related to assortment. It is difficult to convince suppliers that getting shoppers to ‘leave’ big-store shopping routines for ‘small basket’ routines is a good idea. The main barrier is related to assortment. Small stores simply cannot stock a full range of items and they blur categories. Take, for example, Morrisons’ ‘To Go’ category where about five categories become one and are promoted as one. 

Suppliers face three barriers in aligning with this revolution – that, so far, is a small ripple on the market share chart, but is about to become a tidal wave.

  • Category vision / category definition.  The biggest challenge here is related to permanency.  Most suppliers still measure success by number of SKUs featured in a permanent planogram.  Small stores break these rules in three ways: 
    • The best locations in the store are rotational areas where store managers can rotate different items in and out week to week. 
    • Increasingly retailers are finding ways to link last mile logistics to these stores so that ‘endless aisle’ becomes part of the solution.
    • Increasingly retailers are finding ways to rotate solutions by time of day or day of week so that breakfast and dinner have different solutions as well as weekday and weekend have different solutions.
  • Field sales investmentsThe best retailers are discovering that no two stores get the same results when these changes are put in place.  Saavy retailers are enabling some store managers to ‘do what is right’ by localizing the solutions.  This puts more emphasis on having suppliers invest in field sales and other localization solutions at a time where budgets are stretched.
  • eCommerce and Small Box Packs. Finally, these new ‘smart stores’ often require creative approaches to packaging and pack sizes to get them to work with the new tech and the new shopper missions.  Some suppliers, but not many, have their marketing, trade marketing, supply-chain, and sales teams working together to solve these challenges.  Most brands would prefer that their best sellers in big stores would simply get shipped to the small stores or eCommerce depots.

With all that said, most retailers have been right to sit and wait. Likewise, most suppliers have been right to sit and wait. From where we are sitting and waiting, it looks like the waiting is over. It’s now time to stop sitting on the fence.

If you did not have a chance yet, please also have a look at some of our big featured items from Week 18:

Good luck in the week ahead.

Regards,

Ray Gaul – Ray.Gaul@KantarConsulting.com and @KantarConsulting or @RayGaul on Twitter plus LinkedIn.

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