Grocery Retail Innovation 2011


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Competition in the North American grocery industry has never been fiercer. Traditional grocers are facing increasing pressure from retailers in other channels attempting to gain a greater wallet share of the food dollar. Today’s grocery retailers must contend with both broad economic challenges and major shifts in shopper behavior while taking advantage of new innovations to create customer experiences that deliver true differentiation.

The Grocery Retail Innovation 2011 report features 12 best-in-class examples of leading innovation in food retail – approaches taken by retailers as they confront emerging challenges to their respective businesses.

Included in this FREE report are examples of:

* How retailers are using mobile technologies to enhance the shopper experience and how this is driving growth in the grocery segment;

* The growth of value retailers and dollar stores and how they continue to erode the market share of grocers;

* Loyalty programs that focus on offering a better value proposition to customers.

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Grocery Retail Innovation 2011

  1. 1. Building Brands. Building Business. Building Brands. Building Business.Grocery Retail Innovation 201112 examples of innovation & staying powerFebruary 2011January 2011 Scan this QR code with your mobile device to join our Linkedin community. Don’t have a QR code reader? Download it for your iPhone or Blackberry. Scan the QR code to join us for more up to the minute discussions on the grocery channel and other industry trends on our Watt Bullseye Linkedin page!
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  3. 3. 1 Although food and beverage retailing has always been somewhat immune to changes in the economy – we all need to eat and drink – grocery retailers today must contend both with broad economic challenges and major shifts in shopper behavior. The successful grocer must effectively incorporate the desires and needs of their shoppers into their current brand proposition using various offerings that may include discounting, new media and in-store technologies, community involvement and environmentally sustainable practices. The following report features 12 examples of leading innovation in grocery retail – approaches taken by retailers as they confront emerging challenges to their respective businesses in 2011. If you want to explore this topic further, or if you’re interested in finding out how Watt International can help you get “more people, to buy more things, more often”, please feel free to contact me. Sincerely, Patrick RodmellResearch + Insights President + CEOConsulting + Strategy Watt InternationalBrand Strategy + Positioning prodmell@wattintl.comDesign + Marketing 3
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  5. 5. Trends & innovations in thesupermarket of 2011 We have identified several trends in the market that many grocery retailers in the US have responded to, resulting in their continued growth and staying power: • Quality, Fresh, Health (fresh produce, broad selection) – 66% of shoppers say they’re seeking ways to “improve their health and wellness through the foods and beverages they consume” • Social Responsibility & Community Involvement (community involvement, locally grown, green, employee retention, acknowledgement of local ethnic groups) – 45% of shoppers purchase locally grown products 1-3 times a month • Convenience (smaller store formats, intelligent merchandising, “ready-to-eat” solutions) • Value (balancing with quality, channel blurring) – 35% of shoppers cite cost as a major obstacle to healthy eating • Loyalty and Rewards (refined private label offerings, online promotions, loyalty programs) – shoppers indicate they will spend the same or more on private label in 2011 • Digital Communication (in-store signage, flyers, coupons) – in 2010, digital coupon usage increased by 59% The following are some key examples of innovation that respond to these trends. 5
  6. 6. quality 1 Owning health Whole Foods Market is positioning itself as the savior of America’s health, promoting healthier prepared foods and employing a healthy eating specialist at each store. Profitability has doubled in the latest quarter to $57.5 million, and sales in 2010 grew by 12.1%, at $9 billion. The company is highly regarded by shoppers; by December 2010 it boasted 1.8 million followers on Twitter and received 428,520 “likes” on Facebook, making it the most popular supermarket on the social network site. Watt’s P.O.V. Attracting new shoppers and refreshing the brand for current shoppers has become especially urgent at a time when consumers are less loyal to their main store due to economic pressures. Tags like “Health Starts Here” at Whole Foods Market delight the shopper by providing focus and offering lifestyle solutions, which in turn fosters shopper loyalty.6
  7. 7. quality2 Grocery stores lose grip on “fresh” Target recently advertised their fresh offering on buses nationwide – pictured here is the one in Chicago. The “prototype fresh” stores – those that include a full fresh produce section – launched in 2008 in Minneapolis. Currently Target operates 350 remodeled P-Fresh stores across the country. These fresh produce departments will be available in 850 stores, out of its 1,743, by the end of 2011. Target has quickly gained credibility in the fresh food category, while maintaining its value message across all categories. Target is also opening smaller stores to better accommodate urban markets. Watt’s P.O.V. Target’s P-Fresh format exemplifies how grocers are quickly losing share to other channels. This is an example of intensive advertising and aggressive store re-formatting that players in the grocery channel could be leveraging. 7
  8. 8. social responsibility & community engagement 3 Quenching the food deserts Planners in several cities in the US have recently Photo Credit: Mr. T in DC – flickr© begun offering incentives for chain grocers to open stores in underdeveloped urban areas, including “food deserts”, areas with little or no chain grocers in walking distance. According to First Lady Michelle Obama, there are 25.3 million Americans living in these areas. Grocers such as Whole Foods Market in Harlem, Harris Teeter in Northern Virginia, Safeway in Cityvista, DC and Giant in Columbia Heights, DC are taking advantage of these incentives. Watt’s P.O.V. Although retailers in this example have been acting mostly out of pragmatism rather than altruism, it pays in the long run for companies to be socially responsible. A recent study by Cone found that 65% of consumers felt companies should be ethically responsible, and that 60% of them would be more likely to buy products from companies open to shopper involvement.8
  9. 9. social responsibility & community engagement4 Integrity from the inside out Wegmans, with 36,770 employees in the US, is listed at #3 on FORTUNE magazine’s 100 Best Companies to Work For. Wegmans has not had a layoff in its 94 year history. The Wegmans Organic Farm has its own consultant, author and farmer Eliot Coleman. H-E-B’s Hispanic format in Texas exemplifies excellence in shopper marketing. The store environment emulates a Mexican marketplace, and features specialty products that attract a customer base that is up to 70% Hispanic. Watt’s P.O.V. Creating a strong corporate culture among employees through internal marketing programs has proven effective by retailers like Wegmans. Without the dedication of staff, the message does not get effectively communicated to the shopper. Similarly, H-E-B would not have experienced success without catering to the specific needs of its local area shoppers. 9
  10. 10. convenience 5 Specialty stores are the star Compared to more traditional large format grocers, smaller format supermarkets are faring extremely well in the aftermath of the recession. Large scale supermarkets such as Supervalu have faced economic challenges during the downturn, while retailers in the club, supercenter, limited assortment and specialty segment are experiencing gains. Many success stories of the smaller niche market include natural food retailers, such as The Fresh Market in the Eastern US, Whole Foods Market, Sprouts Farmers Market and Earth Fare (in the South East and quickly growing). Watt’s P.O.V. Grocers with a niche offering – like specialty or ethnic foods, artisanal products, or entertaining retail environments – can inspire shoppers to make purchasing decisions for reasons other than price.10
  11. 11. convenience6 Saving time Stop & Shop’s “Scan It!” self checkout system allows shoppers to walk the store, paying with their Stop & Shop card as they go. Shoppers benefit from great deals, free offers, and special savings that are tailored to their shopping habits. Late last year, Apple introduced an iPhone application called “AisleBuyer” that allows shoppers to use their mobile phone to scan and purchase items themselves. Watt’s P.O.V. In stores with a self-scanning option, a recent study found only 22.3% of shoppers actually used the self-scan lane, indicating a need for further merchandising and marketing around that option. 11
  12. 12. value 7 ALDI and the art of value ALDI is a leader in value. Accepting only cash and debit, keeping merchandising simple and floor- ready, and offering private brand options that delight the customer, ALDI has a firm grip on the value segment. ALDI keeps its store offering simple by carrying a limited assortment of 700 SKUs [most supermarkets carry 15,000], with nearly 90% of their products being private label. Although financials are not made public, ALDI’s revenue in 2009 was an estimated $6.5 billion. The company’s expansion – launching over 50 new stores each year – demonstrates their continued success in an unsteady economic climate. Watt’s P.O.V. ALDI has perfected the respectable value offering, providing bright cheerful stores and quality value options such as the Granger brand bacon wrapped beef filet, at $1.99.12
  13. 13. value8 Dollar store heyday Dollar stores are increasingly offering wider ranges of food, digging further into the traditional grocery sector pie. They are also aggressively promoting this offering. For example, Dollar General dedicates up to 50% of their circulars and advertising to grocery goods. Dollar General announced that it will be expanding its 9,200 store presence in 35 states, opening 625 stores and hiring more than 6,000 workers in 2011. Consumables in the store currently account for 72% of sales. Dollar General had sales of about $11.8 billion in 2009, up from about $9.5 billion in 2008. Watt’s P.O.V. Dollar stores are a force to be reckoned with, gaining in popularity through a challenging economy, and claiming their share of the food and fresh categories. This channel reinforces the need for grocers to differentiate beyond price. 13
  14. 14. loyalty & rewards 9 Building loyalty with perks Kroger executives perceive loyalty as the company being loyal to the customer, rather than the customer being loyal to the store. Kroger’s loyalty program offers a number of incentives, including coupons that can be downloaded online to shoppers’ Plus card accounts. In 2009, shoppers were given a chance to win free groceries for a year with their Kroger MasterCard. The company’s quarterly coupon magazines are personalized to reach the 20% of customers who represent 60% of sales. Kroger’s sales in 2010 reached $76 billion, with 3,634 corporate stores and 24% private brand penetration. In the first quarter of 2011, Kroger reached same store sales gains of 5.8%. Watt’s P.O.V. In recent years, Kroger has focused on offering a better value proposition to the customer. In addition, the use of customer analytics, the development of their private brand offering, shopper-relevant price- based incentives and promotions, and an emphasis on service have helped Kroger to differentiate from the discounters.14
  15. 15. loyalty & rewards10 The fun trade Owned by the Albrecht family, Trader Joe’s generated sales of about $8 billion last year from its 342 locations, up from $7.2 billion in 2008 (est.) The store features extensive signage created by an in-house artist. The “Fearless Flyer” promotes specialty limited-time private label products, which represent up to 90% of the store’s sales. Stores emulate an “island style”, with associates dressed in Hawaiian shirts. Watt’s P.O.V. A lot can be learned from TJ’s approach to retailing, which emphasizes fun and adventure for the shopper - an aspect of retailing that can get forgotten at some supermarkets. 15
  16. 16. digital communication 11 Approachable grocers Giant Eagle’s website highlights personalization with lifestyle profiles, quotes and video feeds of happy Giant Eagle shoppers, like “Michael: Giant Eagle customer for 18 years”. The website walks shoppers through every aspect of the store, including how to sign up for “eOffers” that are integrated with the Giant Eagle loyalty card. Giant Eagle’s sales were estimated at $8 billion in 2010, with 15% of these sales coming from private brands. Watt’s P.O.V. Giant Eagle has encapsulated its core customer and identified their needs, creating a promotional space that fully reflects and responds to them personally.16
  17. 17. digital communication12 Bringing the savings to the shopper Food suppliers such as P&G and Betty Crocker are finding new ways to reach customers in-store, using mobile coupon systems that are linked to store sites. Green Giant is teaming up with supermarkets nationwide to offer Farmville (an online Facebook game) cash coupon stickers on its products. Safeway, ShopRite and Kroger also offer mobile coupons. Harris Interactive’s Mobile Couponing Survey indicates that mobile couponing is a hit with shoppers, with 65% of them redeeming electronic coupons from the Internet or via email. Jupiter Research estimates that 2011 will generate more than $7 billion in sales through the use of three billion mobile coupons. Watt’s P.O.V. Mobile couponing will continue to expand and drive growth in the grocery segment. Redemption rates for mobile coupons are 10x that of mail or newspaper distributed coupons. While user adoption has been high, shoppers have been frustrated by a lack of infrastructure at retail locations to allow them to redeem them at the register. 17
  18. 18. Appendix Page 5: All stats from: FMI US Grocery Shopper Trends 2010, except for *1: Digital Coupon Use Soars in 2010, Progressive Grocer, Nov 16, 2010 Example 1: Whole Foods rolls out changes to put “health” at forefront of shoppers’ minds, By Sarah Skidmore, Canadian Business online, Jan 10, 2010; Fortune Magazine’s 100 Best Employers to Work for, 2010; Whole Foods Most “Liked” on Facebook, Supermarket News, Dec 31, 2010; Reaching Millions with Twitter: The Whole Foods Story, M. Stelzner, Social Media Examiner, Feb 9, 2010; Company annual reports Example 2: Westwood Village Target store to remodel and add ‘P-Fresh’ fresh food, P. Robinson, West Seattle Herald, Jan 10, 2011; Target’s Grocery Rollout Spurs Debate, J. Springer, Supermarket News, Oct 4, 2010 Example 3: Urban Grocers Proliferate, R. Steuteville, New Urban Network, Oct 1, 2009; Push for Grocery stores in poor areas, S. Sager, ABC local New York, Sep 24, 2009; Chicago food deserts: Drugstores adding fresh produce, Huffington Post, Sep 8, 2010; Just say no to food deserts, first lady tells Huckabee,, Feb 21, 2010; Companies fail to engage customers on environmental and social issues, Cone/Omnicom press release, May 2010 Example 4: Fortune Magazine’s 100 Best Employers to Work for, 2010; H-E-B opens Mi Tienda format in Pasadena, Wegmans Organic Farm Example 5: Food retail format for the future, J. Domino, GLG News - Gerson Lehrman Group, Nov 11, 2010 Example 6: Forget check-ins, AisleBuyer is an LBS App that’s all about the check-out, Mobile Marketing Watch, Aug 16, 2010; Front End Focus, Best Practices For Superior Checkout Merchandising, page 11, Dechert Hampe, FMI 2010 Example 7: Company Fact Sheet, Aldi Foods website; SN’s Top 75 Retailers for 2010, Supermarket News Example 8: Ahead of the Bell: Service sector index, Jan 5, 2011, The Associated Press; Dollar General to add Colorado stores, Denver Business Journal, Jan 5, 2011; Retail ad circulars reveal top marketing trends, (ECRM Data Points), D. Orgel, Supermarket News, Jan 4 2011; SN’s Top 75 Retailers for 2010, Supermarket News Example 9: Marketing with Meaning Blog, Kroger shows loyalty to customers, DHI Non-conference, B. Gilbreath, Sep 30, 2009; Private Label Magazine’s Top 100 Retailers and Wholesalers, Nov 2010; David Dillon – Power 50 Profile Ranking:1, Supermarket News, Dec 20, 2010 Example 10: SN’s Top 75 Retailers for 2010, Supermarket News; Trader Joe’s owner, German billionaire Albrecht dies, P. Donahue & H. Elfes, Bloomberg Business Week, Jul 28, 2010 Example 11: Private Label Magazine’s Top 100 Retailers and Wholesalers, Nov 2010 Example 12: Farmville cash invades supermarkets nationwide, V. Lavrusik, Mashable, Jul 21, 2010; Facebook credits making real money, Nov 15, 2010, Farmville Reviews (website); Safeway’s grocery chain launches mobile coupon program, G. Tsirulnik, Mobile Marketer, May 26, 2009; Mobile Marketing: Retail’s Next Frontier, Honeywell; Mobile coupon redemption rates to rise this year, R. Kats, Apr 21, 2010, Mobile Commerce Daily18
  19. 19. Watt International: who we are and why you should care.Does your brand break through the noise? Getting into the hearts help uncover the most meaningful insights, set the right strategies,and minds of consumers, and eventually their wallets, is challenging at and deliver results-oriented creative solutions across every brandthe best of times. And if all the pieces of your brand – your research, touchpoint. Through this integrated approach, our clients get single-insights, strategy and creative – aren’t cut from the same cloth, you’re source management, efficiencies in account management, and afighting an even tougher uphill battle. brand experience that’s connected from the first insight to the last creative expression.The key is quite simple – get everyone to sing from the same songsheet. But if you’re dealing with multiple consultants and agencies So if you’re finding that the pieces of your brand puzzle just don’tsomething eventually gets lost in translation. We are a truly integrated seem to fit, we’d love to talk. Our single-source, best-in-class,retail agency, with over forty years experience working in over forty integrated retail model works, and we’d love to show you how.countries around the world. Working collaboratively with our clientsand other supporting agencies where existing relationships exist, we we are retail. Want to know more? 19
  20. 20. January 2011 Scan this QR code with your mobile device to join our Linkedin community. Don’t have a QR code reader? Download it for your iPhone or Blackberry. Scan the QR code to join us for more up to the minute discussions on the grocery channel and other industry trends on our Watt Bullseye Linkedin page! Contact us at 416 364 9384 x 240 or to talk about how we might be able to support your business. North America China 300 Bayview Avenue 24F,520 YiShan Road Toronto, ON Shanghai 200235 Canada M5A 3R7 P.R. China T 416 364 9384 T 021-54250172 F 416 364 1098 F 021-64410492 please visit us at www.wattintl.com20