Retail Intimacy 2.0: Tomorrow’s Consumer, Today’s Win
In a turbulent environment, marketers must adapt quickly and follow the consumer in every aspect of life
Today, shopper marketing practitioners find themselves in an especially turbulent environment that’s reminiscent of “Project Runway” – “Some days you’re in, and the next day, you’re out.” Companies can no longer tinker around the margins or rely on half-hearted measures to revive a failing business.
Just ask the leaders at Shake Shack. In the months following its IPO in early 2015, the trendy restaurant chain was a Wall Street darling. Now, facing slumping sales and relentless competition, Shake Shack CEO Randy Garutti has adopted an aggressive, experimental approach to change and innovation. He refers to the chain’s new cashier-free restaurant location in downtown Manhattan as “the playground” and its employees as “hospitality champs” – apt phrases for a company that is constantly testing and rolling out digital innovations and new menu items because it can ill afford to stand still.
This forward-thinking mindset is the exception to the rule, however. “Many companies just aren’t paying close enough attention to shifting trends nor re-engineering themselves to be as nimble as this new world requires,” says Heidi Froseth, EVP, national shopper commerce practice leader, Catapult. “Ultimately there is one strategy that all organizations must have, and that is an e-commerce or v-commerce story that leverages data and insights, and speaks with an authentic voice to create an experience with consumers that embraces their values and desires.”
Five Trends to Watch
1. Dot & Cross Your IoT’s
The personal voice assistant market will get more crowded with new entrants from Samsung, Alibaba and others. The total connected-home device market will hit 1.8 billion units in 2019, according to Business Insider Intelligence. Nearly 80% of all shoppers are now engaging via apps, text and voice device. An impressive 74% have used live chat while shopping, signaling a new direction in customer service. Artificial intelligence is also gaining traction, with 65% of shoppers having used it and reporting a positive experience.
2. Go Direct to Consumer
Expect more winners in the mold of Fanatics, the licensed sports merchandise brand that’s part e-tailer/tech company, part manufacturer. Fanatics will soon be using NBA arenas as distribution centers to fulfill online orders for apparel and fan gear from all the major pro sports leagues. More than three-quarters of Fanatics’ $2 billion-plus revenue comes from direct-to-consumer sales through its websites and the online shops of teams and leagues. Fanatics is now trying to expand through partnerships with fashion and lifestyle brands. China and the mainstreaming of worldwide soccer will be the biggest growth drivers of this market.
3. Retail Isn’t Dead – It’s Just Different
Small-and-curated “is the new black” as a host of big-box retailers roll out small-format and neighborhood stores. Online retailers are opening more physical outposts. Walmart has launched fashion brands and a new private-label brand specifically for Jet.com. And everyone from Whole Foods to Barnes & Noble seems to be adding premium restaurant/beverage offerings. All of this activity suggests that physical interactions are still a vital component of the retail experience. The idea of retailers as curators, publishers and experience peddlers will become commonplace.
4. Amazon’s Encore
Look for Amazon to build on its Whole Foods acquisition by targeting affluent customers through new partnerships and urban delivery initiatives. The company is eyeing organic growth through homegrown brands in categories like health and wellness, fashion and home furnishings, while many acquisition targets remain on the table. Recent reports suggest that Amazon is closing in on a major move into the pharmacy business with a focus on prescription drug distribution. Other swirling rumors include further brick-and-mortar investment in Europe and a spin-off of its cash cow Amazon Web Services unit.
5. Personalization Nation
Most consumers are not satisfied unless they feel that companies and brands are speaking directly to their values. Sailthru, a personalization platform, released its first annual retail personalization index to analyze how 100 top retailers are managing personalized experiences for their customers. The results reveal that while some leading retailers (e.g., Sephora) are paving the way for top-notch customized experiences, the industry still has a long way to go.
— Heidi Froseth
The Constant Student
Any such re-engineering, she adds, must begin with marketers getting a better handle on what’s happening with the consumer: “We must be constant students and follow everything they do, from how they work and shop to how they spend their leisure time exercising, traveling, socializing, reading or watching TV.” This educational process includes looking beyond one’s own category for inspiration and creating ideas on how to capitalize on shifting consumer attitudes and behaviors.
Consider, for example, what’s happening in the U.S. fitness market. Consumers are increasingly shunning cookie-cutter gym memberships in favor of new-wave experiences and specialty chains like SoulCycle, CrossFit, Pure Barre and Orangetheory Fitness. High-end boutique fitness studios now make up 35% of the $25.8 billion fitness market, according to a 2016 report from IHRSA – the International Health, Racquet and Sportsclub Association.
What’s driving this trend? Odds are you already guessed it: Millennials. Many of these health-conscious young consumers love to work out, but not in the same (read: boring) way that their parents do. They want to be inspired by a group exercise class or participate in the latest indoor/outdoor fitness craze. Millennials don’t want to be tied down by an annual gym membership, and specialty gyms cater to this need with monthly passes or by allowing walk-ins to pay per class. They may also curate their exercise regimens in new ways that spark social sharing. And where Millennials drive a trend, Boomers and Gen Xers often follow.
“Millennials came of age in an experienced-based culture, so their expectations with regard to customer experiences are much higher than those of other groups,” says Brian Cohen, EVP, managing director, Catapult. “That’s part of what drives them to constantly try new things.”
Always Seeking the New
Millennials’ penchant for new experiences helps explain why so many industries that were growing not too long ago are now in rapid decline. Quick-serve restaurants, for example, have taken a pounding over the last 18 months, with average sales down in the low double digits and stocks down in some cases 30% or more. Names like Chili’s, Applebee’s, TGI Fridays, Buffalo Wild Wings and Ruby Tuesday are not connecting with Millennials, who prefer to cook at home or grab a quick fast-food meal and are averse to what they perceive as a low-quality restaurant chain.
When Millennials do decide to dine out, they want to be excited by a new approach that appeals to their handcrafted sensitivities. Consumers ages 18-34 will prioritize experiential factors such as “seeking a trendy place to eat” over menu variety or great-tasting food when selecting a restaurant, according a recent Catapult study on the brand drivers in QSR. Thus, QSR and fast-casual chains should think about ways to heighten the restaurant experience beyond the food. “The back and forth about ‘where to eat’ isn’t a rational or functional conversation,” says Doug Molnar, VP, senior director of planning, Catapult. “There are deeper emotional layers that drive brand selection.”
A similar dynamic is playing out across food and beverage categories. Today’s culture rewards brands with a “fresh” or “unique” positioning, so consumers are constantly searching for items such as the latest artisan coffee roaster or imported bourbon. Millennials likewise prefer the experience of drinking beer from a local and/or small-batch brewery to mega-branded beer. Goldman Sachs expects the overall U.S. beer market to decline by 0.7% in 2017.
CPG Needs an EKG
Many CPG companies are facing a dire sales picture thanks to an ongoing paradigm shift. Growing consumer demand for healthy and fresh foods has decimated sales of everything from soda to soup to cereal, while products like Greek and non-dairy yogurt, naturally flavored and fortified waters, sugar-free teas, coffees and nascent entries in infused juices, kombuchas and dairy alternatives are enjoying tremendous growth. Sales of household cleaning products such as cleansers and fabric softeners are also struggling mightily, as the habits of young consumers drift away from conventional norms toward one-dose pods, wipes and other conveniences. Millennials are not interested in spending their time cleaning or doing laundry, and with clothing material costs continuing to decline, items like T-shirts, socks and underwear can be replaced more readily.
When a product becomes a commodity or no longer fits into consumer lifestyles, it is up to the marketer to infuse that product or brand with an added benefit, usage or a whole new look. Starbucks, for instance, has addressed the desire for smaller portion sizes and portable breakfast snacks with Bantam Bagels and sous vide egg bites. Tyson Foods’ Jimmy Dean has introduced a protein-focused, on-the-go breakfast solution with its Simple Scrambles microwavable egg-and-sausage combinations. Innovations such as yogurt and snack “sidecar” compartment packages provide a template for marketers to leverage the benefits of multiple brands, not only in food but also in categories such as vitamins, beauty and household products.
Some CPG marketers are taking even bigger risks in repositioning their brands. Georgia-Pacific, for example, tapped into the heightened cultural awareness of female empowerment when it put the first-ever woman on its iconic Brawny paper towels brand as part of an exclusive Walmart program to celebrate Women’s History Month in March. In 2016, Kellogg Co. introduced a cereal cafe in New York’s Time Square, touting an immersive culinary experience in which patrons were charged $7 or more for a dressed-up bowl of cereal. While the jury is still out (Kellogg closed the store but plans to relaunch the concept at a larger location in Manhattan), other CPG marketers can take a cue from the effort. Says Froseth: “In order to revive these distressed categories, marketers must think big and cannot be afraid to fail.”
Complacency is also a looming threat for many big-name marketers, as challenger brands are increasingly finding ways to build a better mousetrap. For years, Procter & Gamble’s Gillette touted higher blade counts while nimble rivals such as Dollar Shave Club and Harry’s sold much cheaper versions of comparable products directly to consumers online. As a result, consumers left the brand in droves. From 2010 to 2016, Gillette saw its market share drop from 70% to 54%.
Most experts agree that Gillette waited far too long before lowering prices, making improvements to its subscription service model and taking on rivals in its marketing and PR. However, Gillette’s recent introduction of the Treo razor, aimed at the elderly men’s shaving market, is a sign that the company is willing to place a bet in uncharted territory. Treo’s handle includes a scented gel in a design that makes the shaving action smoother while requiring less water – all functions that address the specific needs of caretakers of older men. This largely unaddressed market has tremendous growth potential. The percentage of men age 65 and older will nearly double by 2050, according to the U.S. Census.
Data Drives Success
In today’s volatile marketplace, there remains at least one constant driver of success: data and technology. “Now that marketers are more accustomed to leveraging big data as part of their insights practice,” Froseth says, “they can focus on understanding the resulting trends, behaviors and opportunities to win with more consumers, more often, and in more ways.”
Marketers must always look at category trends through a dual lens, focusing on (1) the shifting needs and desires of consumers, and (2) the myriad ways in which data and technology drive those changes. For example, the fact that Millennials turn up their noses at restaurant quality isn’t the only problem facing QSR chains. According to a recent report by Morgan Stanley, some 40% of total restaurant sales (or $220 billion) may be up for grabs by 2020 due to a surge in digital food delivery. Fast-food restaurants like McDonald’s and Domino’s Pizza, along with fast-casual chains like Panera, are succeeding in part by expanding mobile/kiosk ordering and pick-up services and meeting demand for healthier, cleaner options with higher-quality food.
Conversely, while Wall Street may have concluded that meal kits are passe and that Blue Apron’s days are numbered (given that Amazon has lent Whole Foods its superior data/technology machine), consumers haven’t had their final say. Walmart, for example, has begun testing meal kit opportunities targeting “urban connected” consumers through niche providers such as Terra’s Kitchen. “Brands have an opportunity to lead the discussion with Walmart by providing solutions that leverage various parts of the store and focus on quick, satisfying, affordable and healthy everyday meals,” says Catapult’s Scott Caldwell, SVP, Walmart, Sam’s Club and club team leader.
All of these examples speak to an escalation of risks and rewards that are challenging every single company and brand. “Many experts will tell you to ‘embrace’ change, be flexible and so on,” says Froseth. “But in order to lead and be successful, marketers must start thinking like a futurist. That means not only anticipating change and opportunities, but creating them – acting, in effect, like a small-batch manufacturer. Take more risk than usual, constantly test and learn, and go deeper into shopper needs, desires and motivations. That’s the best way forward in this highly challenging yet very exciting time.”
About the Sponsor: Catapult is a conversion marketing agency, where branding and buying are part of a total solution. Catapult’s data-driven approach identifies the core, actionable insights that inspire brilliant creative with the power to convert consumers into shoppers, shoppers into buyers, and buyers into loyal advocates. Catapult delivers channel-agnostic solutions that are brand savvy, retailer smart, and digitally enabled. Catapult is an Epsilon brand. Visit them at www.catapultmarketing.com and on Twitter @catapultmktg.