The Year Ahead in Retail: A Commerce Roundtable
The senior leaders of Catapult’s “shopper commerce” practice team dissect the past year’s major retail developments and preview the year ahead. Below is an edited version of the conversation. Participants: Steve Abdo, SVP, grocery and value channel leader; Scott Caldwell, SVP, Walmart, Sam’s Club and club team leader; Angela Edwards, VP, e-commerce practice leader; and DyShaun Muhammad, SVP, Target and drug team leader.
It has been a tough year for traditional mass retailers. Is it possible that all the doom and gloom has been overdone?
Caldwell: I believe it has been overhyped, especially as it has spelled doom for Walmart. Of the $800 billion in U.S. grocery sales, Walmart accounts for $200 billion (25%) while Amazon plus Whole Foods accounts for only $20 billion (2.5%). Grocery is the key trip driver for Walmart, and continued increases in volume and share are currently mitigating e-commerce gains by Amazon and online competitors.
Muhammad: This channel has been facing headwinds for several years. That said, mass retailers have been making changes to better connect with their core shoppers, placing greater focus on their key categories and improving the online/offline experience to better meet shopper expectations. I expect we’ll start to see the benefits of those long-term investments, but it’s a gradual and ongoing evolution.
Is it too early to predict the long-term impact of Amazon’s buyout of Whole Foods Market on Walmart and Target?
Caldwell: Walmart expects to increase e-commerce sales by 40% in fiscal year 2019. That’s a huge leap. It continues to aggressively test and roll out brick-and-click innovations, such as in-home delivery, that will help counter the advantages that Amazon enjoys in terms of price perceptions, quality and experience.
Abdo: It doesn’t surprise me that Walmart continues to have strong sales. They are ahead of the curve with moves like the acquisition of Jet.com. I do think Target will have a tougher road against Amazon. They are still behind in their grocery offering and don’t truly have a differentiated omni-commerce strategy, especially versus Walmart and Amazon. This could create an unrelenting negative slide for them.
What other changes in the retail landscape do you expect in 2018?
Abdo: The big will get bigger – maybe not in store count, but in growth, new opportunities and what they offer to shoppers. Choice and speed will be paramount. Traditional department stores will continue to suffer, unless they can find a way to differentiate and deliver a better holistic experience. Nordstrom’s new service-only concept is interesting. I’m not sure it’s exactly what shoppers want, but that’s the level of experimentation the channel sorely needs.
Muhammad: I think the extensive delays and the regulatory collapse of the Rite-Aid/Walgreens merger will put a damper on any new big acquisitions within that channel. I could see a potential cross-channel merger where a major retailer combines with a drug player to do their own Amazon/Whole Foods play to own more corners. This contradicts the trend of chain retailers trying to relieve themselves of real estate burdens, but the corner market is becoming even more relevant as shoppers now value time and convenience above all else.
What else should we be watching for?
Muhammad: Drug is competing with specialty beauty, c-stores and small-format grocery. Both Walgreens and CVS are rapidly evolving with dynamic mobile-first loyalty platforms and engaging in-store activations. Chains like Dollar General are expanding rapidly looking to nail in loyalty via promotions and mobile-enabled tools. With the growth in a market that is lower-income and more time-pressed than ever, I think we will see a lot more innovation in both drug and dollar stores.
Do you think that behavioral barriers, particularly relating to produce and fresh foods, will limit interest in online grocery shopping?
Edwards: The online grocery experience will improve as retailers offer more options like expanded assortment, click-and-collect and tighter delivery windows. Amazon’s expansion into the sector will accelerate that trend. With the purchase of Whole Foods, Amazon now has access to 430 potential new grocery delivery markets in some of the most affluent neighborhoods in the U.S. Count on Amazon to figure out how to leverage data and utilize their new and expanded footprint to enhance the online grocery experience. And expect others to follow in making technological and experiential improvements that expand the overall market.
Caldwell: To put this in some perspective, online grocery shopping accounts for about 5% of the total food and beverage sales in the U.S. A recent Gallup survey showed that more than eight in 10 consumers have never tried online grocery delivery or pickup due to issues related to access, interface challenges, or awareness. That said, there is huge growth potential in this market. The retailer that can crack the seal in terms of trust, ease and convenience can profit greatly.
What do you think of Amazon’s promotions at Whole Foods stores so far?
Edwards: Amazon has made some very strategic price cuts on traffic-driving items, mainly around the perimeter with items such as milk, bananas and the Millennial favorite, avocados. Amazon will continue to mine data to determine how best to drive traffic in-store, and these price reductions will be one of the levers that they pull. Expect inventory levels to drop and assortment to evolve as the company uses Whole Foods outlets to sell more Amazon merchandise.
Abdo: Amazon will have to work hard to build the type of loyalty that retailers like Kroger have built with their shoppers. They will also have to begin to provide services that they don’t provide today. For example, fuel rewards continue to be at the top of the list as to why consumers shop at a certain retailer.
What is your advice to CPG companies going forward?
Muhammad: CPG companies need to invest much more heavily in experimentation and focus on the retailer and shopper experience. By paying attention to technology trends that are enabling differentiation via services and experience, even in mundane categories, marketers can stay ahead of the curve. For example, Georgia-Pacific is evolving toilet paper into premium “systems” via efforts like their Hyba personal cleansing launch on Amazon.com. These sorts of channel-specific approaches will be key to CPGs leading into the next era of retail.