October/November 2018 – For many years, the growing importance of fresh departments has been widely recognized. With supercenters and warehouse clubs underpricing conventional supermarkets on center-of-the-store items, it became obvious that conventional retailers had to secure their future through the differentiation and profitability of the fresh departments. This has become only clearer with the growth of discount retailers, such as Aldi, Lidl and dollar stores, plus the many online delivery services that ship dry grocery items.
Now, however, the prospect of Omni-Channel Retailing offers to make the retail/foodservice aspect of supermarkets the key to the future.
This means there will be physical spaces in which people will engage. And no department offers a more physically-rooted space for engagement than the foodservice spaces in a store.
Omni-Channel Retailing is different than just having an online ordering portal and delivery service. Partly, Omni-Channel is about customer service. It is a way of serving customers in the ways they wish to be served. That may be a small convenience store or a large supercenter or via delivery.
Looked at from a business perspective, Omni-Channel is a way to maximize sales and profits by leveraging all available touch points. So, for example, Carrefour in France has established that allowing customers to return online purchases in stores increases total sales. Why? People are more likely to buy from a retailer online if they know they can return things conveniently to a local store, and returns often represent an additional purchase occasion.
But maintaining the viability of the store — the physical space — is essential. It does not seem likely that viability will be sustained with dry groceries. In fact, shopping itself may transform into a continuing replenishment model where your favorite shampoo gets delivered every three weeks. Indeed, one would expect Kayak-like digital services to get these branded products for you in the cheapest possible way.
Brands will be in deep trouble, as well. Ordering will increasingly be done through voice. A consumer might say, “I need a pound of sliced turkey breast,” and if that consumer normally buys Boar’s Head turkey from the neighborhood store where there is a visual cue, we don’t really know if that will happen without the visual cue.
We also don’t know how flexible consumers will be. If they do order Boar’s Head, and Alexa says, “We don’t have that, but we have Dietz & Watson, which also is of high quality and recommended,” will consumers say “Ok, do that.”? What if the system biases toward private label brands?
Foodservice, however, seems certain to play a big role. People like to eat, and they enjoy socializing. Sure, people can get lunch delivered to their desks or buy from a vending machine — and these are all aspects of Omni-Channel, as well — but just as the market for flowers for funerals is a “necessity” market — whereas picking up a bouquet for your dining room or significant other is more of an impulse buy — the decision to dine out translates into something more than nutrition. It is why people still go to movie theaters even though they can watch Netflix.
The thing we need to assess is how best to use the foodservice capability in an Omni-Channel world. Sampling seems an obvious win. If there is a new cooked item, for example, using the store foodservice option to introduce it seems a win-win for both retailer and manufacturer.
Just having people in the store creates loads of opportunities to showcase new items — in and out of the deli department. With small screens on mobile devices and no visual cues at all on voice ordering, perhaps supermarkets will be more like showrooms for manufacturers to showcase their products in displays built around vibrant foodservice operations.
So, Omni-Channel consumers can be drawn to supermarkets by these enticements:
- the foodservice operations,
- services such as online returns,
- some areas where consumers like to see, touch and smell before purchasing — say squeezing a melon in produce,
- items difficult to deliver online — hot donuts, for example.
Then the manufacturers will pay to expose consumers to their products just as magazines pay retailers for prominent display. Consumers could scan items with their phones to order whatever they see in-store, but the store would have limited inventory.
It is a brave new world, but it is built around primal human instincts — to eat, to share, to love. db