Report on the Groceryshop 2019

In Cologne and the adjoining Rhineland there is a remarkable saying: “If you do something for the second time, it is customs. When you do it for the third time, it’s a tradition.” According to this wisdom, the US retail conference Groceryshop has meanwhile worked its way up to customs: For the second time since 2018, over 3,000 trade visitors met in Las Vegas between 15 and 18 September 2019 to discuss the latest developments in the grocery and CPG industries.

Once again this year, numerous renowned representatives of companies such as Ocado, Target or Procter & Gamble were present and reported on the stage of the luxury hotel “The Venetian” about the strategies of their organizations – in particular with regard to the digital change and new customer needs. Thus, the event provides an interesting overview of current market developments in the English-speaking world, which may also be relevant for German retail companies. For this reason I would like to give a short summary of the most important insights based on the video recordings of the most important talks – as I did last year.

Luke Jensen – CEO, Ocado Solutions

Already last year Luke Jensen presented the strategy of the British online supermarket Ocado at the Groceryshop. Now he elaborated on his thoughts and addressed, among other things, the question of how digitization can help to meet the major challenges of the grocery retail.

  • Ocado has been on the road in online grocery since 2000. Since neither the hardware nor the software to run this business existed at that time, Ocado developed it itself (e.g. picking robots, routing software).
  • Ocado has thus acquired a technology expertise which it now makes available to selected partners (including Kroger in the USA, Casino in France and Morrisons and Marks & Spencer in the United Kingdom). Ocado has thus transformed its business model to a certain extent – from retailer to technology provider.
  • These partnerships further promote innovation at Ocado by bringing new perspectives and ideas into the company.
  • Technology is the key to good customer service. When the order is complete and the delivery date is met, the interaction between the customer and the deliverer is also better.
  • The digital approach to grocery retailing can help solve a number of industry challenges:
    • The garbage problem
      • Approximately 1.3 billion tons of grocery are wasted annually.
      • This also poses considerable profitability problems for retail companies.
      • Ocado, on the other hand, only has to dispose of 0.7 percent of its goods.
      • The problem should not be thought from the end (How do I avoid garbage?), but from the beginning (How do I buy the right thing at the right time?): Ocado’s forecast is calculated 20 million times a day. In addition, little inventory is accumulated. The goods leave the warehouse according to the first-in-first-out principle. In addition, customers can already see the best before date of their goods in the web shop.
    • The problem of skilled workers
      • In the USA and many other industrialized countries, unemployment figures are falling, making it harder to fill jobs and increasing wage costs.
      • The industry is therefore faced with the challenge of making retail more attractive on the one hand and having to manage business with fewer but more highly qualified employees on the other.
      • Ocado points out a possible way for this: Digitalization creates new, highly qualified jobs for engineers and software developers, for example.
    • Friction points in online grocery
      • The four biggest annoyances for online grocery customers are missing products, wrong substitutes, products that have already expired or are about to expire, and late deliveries.
      • In-store picking, which is widespread in the USA, does not solve these problems. Therefore, Ocado relies on a network of larger and smaller fulfillment centers. In London, some deliveries can be made within 30 minutes.
    • Only about two percent of the US population use online grocery. In Great Britain, the market share is already significantly higher. Given that 70 percent of Americans live in a nearly urban environment similar to that of the British, there is still potential for growth.

Stephanie Lundquist – EVP & President of Food and Beverage, Target

Target Corporation is one of the largest retailers in the United States. The company nevertheless had a certain potential for optimization in the grocery sector. In her talk, Stephanie Lundquist explained how this potential has been used over the past three years.

  • Three years ago it was decided that Target wanted to make major changes to its business. Therefore also numerous high-level personnel went on Immersion Trips, in order to speak directly with customers. The customers did not know during the interviews that they were talking to Target employees. In this way, honest feedback could be collected.
  • The resulting findings led to a new corporate strategy, for the implementation of which 7 billion US dollars have so far been invested.
  • Particularly for the category “Food & Beverage”, an own way had to be found. This was due on the one hand to the food-specific characteristics, but also to Target’s approach to the category to date.
  • Target did not enter the grocery business until 2008, so many stores had to be rebuilt. Nevertheless, rapid growth was achieved. As a result, however, the approach to the business was primarily functional and transactional, which did not fit in well with the more trendy Target image.
  • However, analyses have shown that customers want a smarter approach to the issue. For example, sales of Oatly oat milk were salient.
  • For this reason Target created its own brand “Good & Gather” (focus on good ingredients, high quality and taste). This brand is intended to strengthen Target’s positioning in the market. In total, more than 2,000 products are rolled out under this brand.
  • Further measures:
    • Refreshing existing branches
    • Development of new Small-Format Stores
    • Increase of the minimum wage up to 15 US dollars per hour by 2020
    • Hiring 10,000 new store employees who are exclusively responsible for the grocery sector.
    • Acquisition of the delivery service Shipt and conversion of own stores into Digital Fulfillment Hubs to enable better home delivery.

Farhan Siddiqi – CDO, Ahold Delhaize

Farhan Siddiqi also represented a traditional retailer as an executive of the Belgian-Dutch Ahold Delhaize group. In an interview with Groceryshop presenter Zia Daniell Wigder, the CDO spoke about transformation possibilities in the grocery sector.

  • The grocery retail is lagging behind in terms of digitization. What many dealers forget: It is not only our own industry that shapes customer needs, but also the leading industries. The customer therefore expects more.
  • Approach: Do not think in terms of technology, but always keep business priorities in mind. On this basis one should ask the question: How can the technologies help to implement these priorities?
  • Accordingly, one should not jump on the bandwagon of hypes, but should always first think of the problem one wants to solve when dealing with topics such as artificial intelligence or robotics, and evaluate technologies on this basis. This filtering process is hard work and takes a lot of time.
  • There is currently a lot of optimism in the online grocery market in the USA, as the market shares in Great Britain are being used as a model. In addition, there are many categories (such as fashion and shoes) of which one would have thought a few years ago that online retail would not be possible in them.
  • The pain points of the customers have to be solved bit by bit. Then at some point the Tipping Point will come. What are these pain points?
    • The customer experience must become more intuitive.
    • Online Grocery has to offer more convenience (e.g. Same-Day-Delivery).
    • Efficiency must be increased in the picking process.
    • In addition, no standard has yet emerged in the area of delivery. Maybe we’ll stick with the current mix.
  • In the future, customers will continue to use both the online ordering option and the brick-and-mortar store and switch between the various channels. So there is a need of an overall picture with as few friction points as possible.

John Furner – CEO, Sam’s Club

John Furner, Managing Director of Walmart subsidiary Sam’s Club, talked to presenter Lauren Hirsch about the special challenges of a so-called “warehouse club”, i.e. a membership-based retail company.

  • Sam’s Club is undergoing a far-reaching transformation process: about 10 percent of the stores were closed. However, some were converted into fulfillment centers, which now support the e-commerce business.
  • In this way the number of employees could be kept constant – only the work changes according to the new customer needs.
  • Three-part corporate strategy
    • Support of own employees across the entire company: This means, for example, increasing productivity via technologies so that the employees in the stores have time for serving the customer.
    • Great work as a merchant.
    • Building digital capabilities: However, there is not the single skill needed to be successful. Therefore, they are primarily evaluated according to whether they reduce friction points for the customer or the employee. The Lab Sam’s Club Now in Dallas was therefore deliberately given space to experiment in exchange with real customers. Especially in the area of Augmented Reality, surprising successes have already been achieved.
  • In contrast to the parent company Walmart, Sam’s Club also works with Instacart. The aim of this cooperation is to satisfy customer needs and to be able to deliver on the same day. In addition, Sam’s Club has a comparatively small product range of only a few thousand products. This can be easily mapped in cooperation with Instacart.
  • Both traditional branches and home delivery will be important in the future. Sam’s Club also sees its stores as possible warehouses for the picking process. This makes the company flexible in both environments.

Carolyn Tastad – Group President North America & Executive Sponsor Gender Equality, Procter & Gamble

But not only retailers entered the stage in the context of the Groceryshop. Consumer goods manufacturers were also represented in large numbers. Carolyn Tastad, for example, described the strategy pursued by Procter & Gamble in times of digital transformation.

  • The economy is characterized by constant disruption. The speed of change is constantly increasing. New technologies force us to question everything over and over again. Yet one thing hasn’t changed: As a consumer goods manufacturer, P&G has to make great products that give customers great experiences.
  • Nevertheless, CPG companies must face up to new expectations:
    • Convenience has become much more important.
    • Customers expect unique, personal offers that surprise and delight.
    • In addition, values such as sustainability are becoming increasingly important.
  • This is no longer business as usual. This is why P&G consistently invests in technology:
    • Development of tech-enabled Brands.
    • Investment in Data & Analytics to be able to approach the customer even more effectively.
    • Improve the supply chain through automation and digitization.
    • Investments were also made in employee training.
  • But high-tech alone is not enough. P&G must also strive to become “high-touch”.
    • Customers want to know more about their products. P&G is therefore actively working to reduce waste and plastics.
    • Customers want data security and privacy.
    • Customers want companies that express themselves on socially relevant topics.
    • Transparency becomes a fundamental principle.

Jordana Kier – Co-Founder & Co-CEO of LOLA / Zak Normandin – Founder & CEO of Iris Nova/ Bryan Crowley – CEO of Soylent

Digital Native Brands such as LOLA, Iris Nova and Soylent have developed into a serious competition for traditional consumer goods manufacturers in recent years. In an interview with Zia Daniell Wigder, three leaders from the DNB scene gave insights into the success factors of their business models.

  • A brief overview of the industries in which the three companies operate:
    • LOLA: hygiene articles and contraceptives
    • Iris Nova: beverage
    • Soylent: liquid food products
  • Could large companies do what the three DNB representatives have done with their brands?
    • In principle, they could. However, the organizational structures of large companies with their incentive models are designed in such a way that it is very difficult for them to reorient themselves. This lack of mobility opens up opportunities for new competitors.
  • Are Digital Native Brands limited to the Millennial Bubble?
    • Of course you start with urban millennials, because they are good early adopters. But DNBs usually target a wider range of the population. The digital channel is suitable for this because almost every consumer now buys online. This means that you can reach completely different target groups digitally than you did 10 years ago.
  • Are TV commercials a necessary prerequisite for reaching the next level?
    • TV commercials can be a very effective way to reach customers. But the spots are not a universal solution either. Whether they are successful depends instead on what you want to achieve with them and which products you present.
    • In general, new ways of communicating with the customer must be found. The advertising prices on Google, Facebook and Instagram have now become so expensive that some channels are already being taken out of the portfolio as advertising media.
  • Are own stores or trade partnerships necessary?
    • Here, too, it depends on the goal you are pursuing. If customer access is the goal, brick-and-mortar retailing may be a useful addition. When making a decision, however, one should always bear in mind what impact such a step will have on the direct-to-consumer relationship that one has worked out beforehand.
    • Zak Normandin used to be very negative about trade partnerships. In the meantime, however, he has recognized the advantages. Own stores were developed, in which all Iris Nova products can be found. Customers can go in there, take the products off the shelves and leave the store without having to queue at a checkout. Instead, you send a text message telling which products you have taken and these are automatically billed.
    • With this concept, which of course does not work everywhere, friction points for the customer are to be eliminated. He shouldn’t have to stand in line for 15 minutes for a drink. Iris Nova experiments with this approach and sees how it develops.

Stu Landesberg – Co-Founder & CEO, Grove Collaborative

The Grove Collaborative is also one of the Ditigal Native Brands. As an online shop for sustainable household products, the company sells both its own brands and curated private labels. In his talk with presenter Joe Laszlo, CEO Stu Landesberg revealed a few details about the business model.

  • The company’s goal is to drive forward the transformation of the industry towards greater sustainability and waste avoidance in order to enable customers to change their behavior in this way.
  • Advantages of Grove that the industry has never had before:
    • Grove speaks directly to consumers and receives feedback in this way.
    • Grove is not dependent on the brick-and-mortar retail.
    • Products in need of explanation can also be placed digitally with content such as videos.
  • The effect can be seen, for example, in plastic consumption. A lot of plastic is used in household products. Through a mix of trust building and storytelling, Grove succeeds in convincing customers within the digital environment to switch to reusable packaging, for example.
  • Grove has customers not only in urban areas. Instead, the desire for more sustainability is spreading throughout the entire population. The top-selling postal codes are, for example, in Texas, Tennessee and Utah.
  • Grove generates most of its customers through recommendations. Grove doesn’t have to pay for this one. Paid advertising only comes on top.

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