The Supply Side: Suppliers must assess, reconfigure retail strategy

Like it or not the retail landscape is reconfiguring itself for the future while much of the supply chain is planning with yesterday’s strategy, according to Leon Nicholas, senior vice president at Kantar Retail who spoke at the Emerging Trends in Retail Conference June 11 in Springdale.

Nicholas said disruption in the retail sector will intensify in the coming years and suppliers must be ready to adapt. He said there are four demographics reshaping retail. Nicholas classified the groups as the younger haves and the have nots and the older haves and have nots.

Millennial households earning under $62,000 annually are have nots. He said this group is looking at higher debt levels so they are smart, budget-conscious shoppers. They also use digital tools on their own terms and are always looking for something more.

Walmart’s Neighborhood Market is a huge opportunity to reach this group, he said, if the stores are merchandised with the items they want — alcoholic beverages, wild oats organics and fresh foods, both raw and cooked. Nicholas said (Walmart) suppliers are likely reaching this group, but the Millennial households earning more than $62,000 annually are not easily won.

“They are starting to make it and they have the money to walk the talk. While they are looking for values they also want transparency. This group is leading the disruption in the retail world today and responsible for the growth of online and speciality retailers. They have money but they are not spending it the same way their parents did,” Nicholas said.

He said growth in e-commerce sales also is responsible for fewer store shopping destinations. In 2007, consumers regularly shopped 12.4 retailers monthly, but by 2014 that list was trimmed down to 9.7. While there are fewer destinations, the number of trips are increasing. Nicholas said there are fewer outlets on a consumers’s list because they are using technology to broker commerce. 

He said it’s not just Millennials shopping online and pushing more sales to the virtual shelves.

“Suppliers must have a digital strategy today,” Nicholas said.

By 2020 Kantar Research expects 4% of all food and beverages will be purchased online, but 100% of those purchases will be influenced by technology. 

“Are you ready for 4% of your category’s sales to go online? What is your plan because your scale is going to be disrupted,” Nicholas warned suppliers.

He said one in five Wal-Mart shoppers are also Amazon Prime members and 32% of Generation Y are members of Prime which is a focus of concern for brick and mortar and the context for so many of the changes in retail. He said Amazon Prime is a problem for Wal-Mart supercenters because every Prime member who shops a Wal-Mart store has to wonder if they can get the same item cheaper and delivered to their home with Amazon, given they have already paid $100 for that membership.

Nicholas said older households earning more than $62,000 annually are looking for ease and enjoyment. These boomers and seniors have a “do-it-for-me” mentality which aligns with subscription-based ordering and health and wellness services which CVS, Sam’s Club and other retailers are chasing. They too are finding the ease of online ordering a convenience.

He said the older have nots are looking for private label alternatives. Aldi does a good job catering this segment because the stores are small, values are high and service is fast. He said smaller formats in general hold opportunities for all the groups. Nicholas also this demographic is the most concerned with preserving good health and will continue to look to those retailers who offer services in that area as well as strong values on prescriptions and other wellness products.

RECONFIGURATION UNDERWAY
Nicholas said shoppers must be re-energized today, not through selling as a strategy but by engagement in “multipoint lifestyle conversations.”

“Our job is to turn those conversations into commerce and move the relationships we build into revenue,” Nicholas said. “The marketing has to start way before she gets to the physical store.”

He said retailers engaging shoppers are trying to build trust on two levels. The first class is the procurement brokers. They deliver to the shopper reliable products, and things needed each day. He said consumers identify with retailers on this level because they know they can find a particular item anytime they need it.

The second type of retailer is a lifestyle “curator,” according to Nicholas. He said this shopper might not know what they need and for this they turn to lifestyle curators. He said those with limited budgets look to Dollar General because they know they have low opening prices points. He said Big Lots also fits this category because it caters to a lifestyle for shoppers on a tight budget, the same way Whole Foods does for its core consumer.

He said it’s important for vendors to look at the retailers they supply and make sure their products and marketing efforts line up properly with the retailer. A procurement broker and a lifestyle curator require two very different strategies. Nicholas warned that as retailers look for ways to engage their shoppers and reinvent their formats using technology, suppliers have to be careful that their products are not just the side show.

He said suppliers need to look for ways to align with a retailer’s services whether it’s vision care or nail salon or perhaps oil changes or selling insurance products. Nicholas said Proctor & Gamble did this by aligning with Wal-Mart’s dental care initiative.

Nicholas also said as brick and mortar formats are changing suppliers have been adapting. He said the new model for brick and mortar is to become experience centers where shoppers can touch, engage and try products before purchasing.

As brick and mortar formats are changing so will the online buying experience. Nicholas said the virtual stores are more apt to become less like a traditional shelf, search for and pick the item you want, to a more solution-oriented format. 

“Consumers can shop a lifestyle catalog and then click the images to buy from the scenario given,” he said.

Being seen as a lifestyle solution or a compliment to a needed service will be more important for product suppliers in the coming years, Nicholas said. He urged suppliers to sell a lifestyle, not products and categories.

“In an online post-shelf medium is there going to be any room at the end for you?” he concluded.