In the highly competitive new world of retail, fresh fruits and vegetables have the opportunity to play a much more pivotal role. Retailers of all types—traditional grocers, deep discounters, club stores, ecommerce platforms, and even convenience stores—have been pushed into a fierce battle for foot traffic and market share amid changing consumer shopping habits and shrinking margins.
Steve Grinstead, founder of the Grinstead Group near Dallas, TX, calls it “a perfect storm” compelling retailers to try to stay a step ahead of rivals. “The ever-changing retail grocery business has gone from evolution to revolution,” he declares.
As a result, retailers are looking for ways to entice consumers into their stores by offering meal kits, salad bars and cafes, mobile checkout, artificial-intelligence powered advertising, specialized service kiosks, and other conveniences to ensure shopping is not a chore but an experience.
Of Millennials & Meal Kits Millennials are embracing ecommerce-based meal kit services like Blue Apron, Home Chef, and Hello Fresh, pushing grocers to renew their efforts in this category. Last year, Albertsons purchased meal kit service Plated and H.E.B. launched Meal Simple, while this year ShopRite debuted Chef’s Menu, to name just a few examples.
While respondents to the 2017 U.S. Supermarket Experience Study conducted by the Retail Feedback Group touted saving time as a primary reason for using meal kit delivery services, cost was a deterrent. In contrast, 15 percent of shoppers said their primary supermarket had a meal kit offering—and the top reasons for purchasing from this channel were value, quality ingredients, and saving time. Is this not a clear message to retailers?
“While it remains to be seen whether meal kits are permanent or not, our research shows supermarkets have a key advantage over meal kit services in the area of value,” confirms Brian Numainville, principal at Retail Feedback Group. “So providing meal kits that are solid in terms of quality and value could be a win for supermarkets.”
“There are really two issues for supermarkets,” observes Chris Baker, partner in the retail and consumer goods practice at Oliver Wyman in Chicago. “First, is it a good idea and do customers want it? And second, is it profitable? There’s demand in many places, but the challenge is on the profitability side.”
“Retailers are trying to figure out where they fit,” notes Mike Kienzlen, principal at Retail Profit Solutions, noting that grocers from Kroger and Safeway to independents are getting into the segment. “Can they make money on it? Are they cannibalizing their own sales?” Another concern is shrink, which can be greater than 50 percent on meal kits, along with the marketing dollars and display space required.
In the highly competitive new world of retail, fresh fruits and vegetables have the opportunity to play a much more pivotal role. Retailers of all types—traditional grocers, deep discounters, club stores, ecommerce platforms, and even convenience stores—have been pushed into a fierce battle for foot traffic and market share amid changing consumer shopping habits and shrinking margins.
Steve Grinstead, founder of the Grinstead Group near Dallas, TX, calls it “a perfect storm” compelling retailers to try to stay a step ahead of rivals. “The ever-changing retail grocery business has gone from evolution to revolution,” he declares.
As a result, retailers are looking for ways to entice consumers into their stores by offering meal kits, salad bars and cafes, mobile checkout, artificial-intelligence powered advertising, specialized service kiosks, and other conveniences to ensure shopping is not a chore but an experience.
Of Millennials & Meal Kits Millennials are embracing ecommerce-based meal kit services like Blue Apron, Home Chef, and Hello Fresh, pushing grocers to renew their efforts in this category. Last year, Albertsons purchased meal kit service Plated and H.E.B. launched Meal Simple, while this year ShopRite debuted Chef’s Menu, to name just a few examples.
While respondents to the 2017 U.S. Supermarket Experience Study conducted by the Retail Feedback Group touted saving time as a primary reason for using meal kit delivery services, cost was a deterrent. In contrast, 15 percent of shoppers said their primary supermarket had a meal kit offering—and the top reasons for purchasing from this channel were value, quality ingredients, and saving time. Is this not a clear message to retailers?
“While it remains to be seen whether meal kits are permanent or not, our research shows supermarkets have a key advantage over meal kit services in the area of value,” confirms Brian Numainville, principal at Retail Feedback Group. “So providing meal kits that are solid in terms of quality and value could be a win for supermarkets.”
“There are really two issues for supermarkets,” observes Chris Baker, partner in the retail and consumer goods practice at Oliver Wyman in Chicago. “First, is it a good idea and do customers want it? And second, is it profitable? There’s demand in many places, but the challenge is on the profitability side.”
“Retailers are trying to figure out where they fit,” notes Mike Kienzlen, principal at Retail Profit Solutions, noting that grocers from Kroger and Safeway to independents are getting into the segment. “Can they make money on it? Are they cannibalizing their own sales?” Another concern is shrink, which can be greater than 50 percent on meal kits, along with the marketing dollars and display space required.
That said, meal kits support the produce category as a whole, according to Alex Jackson Berkley, assistant sales manager at Frieda’s Inc., in Los Alamitos. She notes that some supermarkets are working with existing vendors to provide produce for kits, but more significantly, the kits allow consumers to sample unfamiliar or exotic items, raising the chances they will return to the store to purchase more of these unfamiliar commodities. “They’ll buy those new items,” she contends, “even if they’re not buying more meal kits.”
Convenience and choice Other initiatives focused on customer convenience also seem to be working for supermarkets and include in-store delis; sushi, olive, salad, and hot food bars; readymade or heat-and-eat meals; and prepared salads and other value-added products according to retail marketing consultant Ed Strapagiel. All of these initiatives are widespread and continue to expand, he says, which suggests they’re profitable and popular with consumers as both a convenience and a way to reduce waste. “Stores are expanding the palette of foods they offer,” he notes.
Prepared meals have been a particularly strong lure for shoppers. “Heat-and-eat is kind of like the new frozen entrée,” says Kienzlen, while meal kits are a tradeoff, purchased instead of other foods.
Jackson Berkley points to the surge in value-added healthy products, citing healthy snack packs with a protein-rich combination of grapes, cheese, and nuts as an example. Another is the prevalence of salad bars, formerly tailored to busy moms, but now geared more toward millennials. “This means they’re stepping up the trendiness,” she says, by adding an eclectic mix of salad makings along with chile peppers, exotic vegetables, and fermented items like pickles and sauerkraut.
Shopping Anytime, Anywhere
Supermarkets have also been focusing on ecommerce as another venue for convenience. “One of the drivers certainly seems to be Amazon’s focus on the food industry,” mentions Numainville. “Many supermarket retailers were slowly moving (and some more rapidly) towards ecommerce and other technology before Amazon bought Whole Foods. But since then we’ve seen a flurry of activity and interest by many more retailers, as the future looks different now.”
Nielsen and the Food Marketing Institute estimated in January 2018 that online grocery sales were expected to reach 20 percent of total grocery sales, or $100 billion, as early as 2022—an accelerated timeline compared to research conducted a year earlier.
“Even though online ecommerce is only a few percentage points of market share in the United States, the trend is deepening,” Baker says. “The latest research shows consumer demand is high.” According to global management consultants at Oliver Wyman, two-thirds of consumers both in the United States and worldwide either shop for food online—or would be interested in doing so if convenient products were high quality and well-priced—as compared to shopping online for apparel and other items.
For fresh produce, especially fruit, the main barriers remain a lack of trust and concerns about quality, since shoppers must rely on someone else to pick, pack, and deliver these items in peak condition. Baker says retailers haven’t solved all the issues yet, but when they “can provide good quality produce at a good price, there’s no reason why people wouldn’t buy produce online. When this happens, it will cause massive disruption, even in the very freshest of categories.”
Demographics and Expectations
Laura Strange, vice president of industry relations, communications, and marketing at the National Grocers Association (NGA), which represents independent grocers, confirms that many NGA members are looking into ecommerce. “One thing to keep in mind is the excellence on the service side that independent grocers can provide,” she says. “You have to meet that expectation across platforms.”
This includes supply-side processes to ensure produce arrives in good shape. “No matter how the online experience is, you still want the process to work well,” Strapagiel adds. “Your tomatoes can’t arrive rotten.”
Kienzlen stresses that strategies for going online vary, depending on the nameplate, customer demographics, and other factors. Each operator must do what is right for its market, rather than chasing trends. “You don’t compete with Amazon, you compete with yourself,” he stresses. “It’s not national trends you need to watch, it’s what’s going on in your neighborhood.”
The focus on home delivery versus click-and-collect also differs by market. “What makes sense economically differs in New York City and Seattle versus suburban Kansas City,” points out Baker. Markets with high population density and commensurate incomes will trend toward home delivery, he believes, while those with lower density and income will more likely lean toward click-and-collect programs.
So far, urban markets are driving the trend, as suggested by the third annual National Grocery Shoppers Survey, conducted by Nielsen for the NGA. It found 76 percent of independent grocery shoppers who have purchased groceries online have used food delivery, compared to 39 percent who have used the click-and-collect method.
Online vs. Store Purchasing
The Grocery Shoppers survey also indicates that the rise of produce sales through ecommerce does not signal the end of produce departments in stores. According to the findings, 68 percent of independent grocery shoppers who purchase online do so in addition to shopping in stores, and over 80 percent of shoppers prefer their local store to an online alternative.
There are, of course, some shoppers who may fully embrace online and rarely venture to a store if the online experience is perfected for both packaged and fresh items. “Grocery shopping used to be a necessary task many people dreaded, but now there are many options including online, delivery, pickup, etc. to acquire these products without the drudgery of going to pick them out at a store,” observes Grinstead.
More likely, however, is the furtherance of shopping both online and in stores. So the question now becomes how will the growth of online shopping change bricks-and-mortar stores, and how are operators preparing for this change?
“A lot of what retailers are doing across the store is trying to engage shoppers and expand the experience, to make shopping fun, which means expanding the footprint,” explains Strapagiel. “At the same time, the focus on online shopping, home delivery, and click-and-collect are about keeping shoppers away from the store and making a push toward smaller stores.” How retailers deal with this duality is key.
Strategy and differentiation
There are a number of options retailers can choose for a bricks-and-mortar strategy in an online world, including a focus on fewer SKUs with an eye toward replenishment between online orders; offering fresh categories with a limited center store; concentrating on basics and competing primarily on price; specializing on a category like organics and providing high quality at a good value; or pursuing the experiential side of shopping with sampling, dining, demonstrations, inspiration, product variety, and community.
“You do miss things online,” concedes Jackson Berkley, like “the fresh smell and sensory experience. The store that masters an in-store experience where you can taste, smell, and see new things can excel as a complement to online shopping.”
“Some stores will be like Whole Foods, Mariano’s, and Wegmans on steroids,” Baker predicts, but notes not all will succeed with such high-end, experience-led strategies. Similarly, not all chains can sustain a limited, low-price strategy of the sort Lidl or Aldi have perfected. Each must pick the best-suited strategies tailored to their specific market and customer base to succeed.
“You have to look hard at what works economically,” Baker adds. Retailers must have the required traffic flow and volume to justify the fixed costs. Further, each store within a chain may differ, with one offering a full experiential shopping experience and others serving as streamlined spokes around the hub.
Each iteration of retail also affects suppliers, especially those in perishables. Whether touting low-priced fresh produce or a wide range of both staples and exotic fruits and vegetables, it can be a boon for wholesalers—especially when locally grown items are in season. Knowing the strategies and not just meeting expectations but exceeding them will put suppliers in good stead.
Experiential Impact
Millennial shoppers in particular are interested in experiences more than products. According to a 2017 poll by global researcher Ipsos Group S.A., 75 percent of millennials would rather buy an experience than a desirable thing, and while they are a tech-driven generation, 75 percent also feel that participating in or attending a live event is more impactful than taking action online.
While these figures may apply to experiences such as concerts and political rallies, the results translate to supermarket shopping as well. Millennials tend to enjoy in-store activities that inspire, educate, offer a sense of community, and make shopping pleasurable. Examples include in-store demonstrations, produce butchers, retail dietitians, in-store or ‘grocerant’ dining options, or kiosks offering information about fruits, vegetables, herbs, and cooking.
“Millennials will get many of their products online, but they still like the experience of going to the store if it’s fun and exciting,” Grinstead says. “Just going to pick up groceries has no interest to them, so millennials are significantly driving this change and many retailers are either proactively changing the shopping experience or are being forced to out of self-preservation.”
Visibility and engagement
Experiential events and activities are likely to become even more important as online shopping expands. “Community events are an area that’s harder for pure-play ecommerce providers to replicate, so retailers should look for ways to be fully engaged and visible within their communities,” counsels Numainville.
Locally grown produce plays into this trend. “Local reinforces fresh and makes the retailer seem more aligned with the community,” agrees Numainville. Further, being creative with store promotions and events tied to specific seasonal commodities can attract shoppers.
“In-store demonstrations can be extremely impactful in the produce category if handled properly,” Grinstead adds. “The person demonstrating the product has to be very knowledgeable about where it’s grown, growing practices, nutritional value, and how to prepare and enjoy the product, etc. Just handing out samples isn’t an overly effective selling tool.”
Experiential events, however, must be subject to the same cost-benefit analysis of any other initiative. “You have to look at it and question the value and the economics,” cautions Strapagiel. He believes some supermarkets may be driven more by industry trends than consumer needs. “There’s a missing piece here,” he insists. “Yes, businesses are trying all of this, but there must be in-and-out efficiency, good quality, and decent pricing.” To his way of thinking, “I don’t want a mariachi band, I don’t want to be entertained—I want to be served.”
On the other hand, Jackson Berkley notes the investment is often worthwhile. “It’s like specialty produce,” she explains. “There’s shrink, but it’s good shrink.” Experiential activities like produce butchers expand customer palates and set a store apart from its competitors, which can make the cost, including the shrink, well worth it.
The Technology Edge
Technology itself provides another means of enhancing the consumer experience. “Supermarkets need to be exploring all of the different opportunities emerging today to take advantage of new technology that helps them know and serve their customers better,” Numainville says. “While some of these have been around longer than others, and new tech is being born every day, retailers need to explore what’s right for them and works with their format.”
“We’re definitely seeing more use of technology in our membership,” confirms NGA’s Strange. “Based on what consumers are asking for, one [grocer] might be focused on self-checkout and another on delivery.”
As with the other components of the shopper experience, judgment plays a pivotal role. “Not all tools are right for every format and every demographic, but neither is waiting on the sidelines,” emphasizes Numainville. This is especially true as “players like Amazon get more engaged in the food industry and utilize all of the arrows in their quiver, such as voice-ordering via Alexa and easy replenishment through Amazon Dash, as well as the checkout-free experience offered at Amazon Go.”
Shelf and checkout tools
A hotbed of current interest is speeding up checkout like Walmart’s Check Out with Me anywhere process to self-scanning to eliminating the process entirely, like the Amazon Go model. “I think the scan-and-go technologies are going to be the greatest factor in reinventing the shopping experience,” predicts Grinstead. “Waiting in line to check out remains the most frustrating thing about grocery shopping for most people.”
Technologies at the shelf or bin level, such as advertising to provide fluid information and pricing, have become more affordable in the past decade. Among the chains in this realm are Kroger, with plans to implement its Kroger Edge technology, developed with Microsoft Azure, in 200 stores.
The technology, which Kroger is also selling to other retailers, displays pricing, nutritional information, video ads, and coupons digitally at the shelf.
Ultimately, it will communicate with customer smartphones, highlighting items on shopping lists or spearheading products for those with specific dietary needs. Though the technology currently revolves around packaged goods, it could prove useful for bulk produce and fresh-cut items as well.
Scandit offers similar smartphone-based augmented-reality scanning in stores. The company currently has several dozen deployments in large retail chains including Southeastern powerhouse Publix. “You’re bringing the ecommerce experience to the store,” notes Christian Floerkemeier, cofounder, vice president, and chief technology officer at Scandit. In addition to pricing, nutritional data and the like, stores can also enable devices to verify shelf-label information.
Employee use of technology such as Scandit’s could improve the shopper experience as well. Rather than having a half dozen Zebra or Honeywell point-of-sale scanners in store, Floerkemeier says each employee could have a smartphone equipped with simpler, more flexible capabilities. This would improve customer service by allowing any employee to respond to shopper questions quickly and accurately.
Focus on Fresh A supermarket’s produce department, if done well, is a key part of a good shopper experience in the store. “Our research shows that satisfaction with the fresh department is three times more important in overall satisfaction than any other part of the store,” Baker says.
Numainville reiterates the importance of locally grown fruits, vegetables, and herbs. “While local might be defined differently, the aspect of telling the story behind the food is something many shoppers find important to their purchase decision. Plus, local reinforces fresh and makes the retailer seem more aligned with the community.”
Fresh produce also enjoys a connection to a healthy lifestyle—which is marketing gold. The NGA study, for example, found that 63 percent of shoppers who frequent independent stores expect them to support healthier lifestyles. “There’s an opportunity for independent supermarket operators, especially in the area of fresh, to excel,” confirms Strange.
The quest for more and better produce is universal, to a degree, but is easier for premium formats. “It’s happening more at the high end where margins and profitability are better,” notes Strapagiel. “They’re finding economical means to experiment with more exotic and international foods that may not play as well in the discount formats.” He adds that price competition means retailers at the lower end have a fail-fast strategy where initiatives that don’t work right away are terminated quickly—a strategy that often doesn’t work well with exotic produce, which can take time to build a following.
Formula for Success
“Product quality and variety, while certainly important and the center focus of some formats, are not the focus in all formats,” Numainville says. “In other cases, elements like value and service are primary components. For example, Aldi certainly has a limited variety but offers an exceptional value and solid quality.”
The 2017 Supermarket Experience Study found 49 percent of Aldi shoppers were highly satisfied with quality and freshness, compared to 58 percent of supermarket shoppers overall who indicated they were highly satisfied with quality and freshness at their supermarket. “So in the end,” Numainville notes, “while all of what we call the ‘core experience factors’—variety, service, value, quality, and convenience—are important, different formats accentuate different components.”
“Great focus on fresh is pretty much universal and should be a component of every retailer’s focus for the future,” asserts Grinstead. “Product quality and variety have become more of an expectation, like food safety. It’s just the price of admission. The experience has to be created around that to entice consumers into the stores on a regular basis.”
The same is true for online shopping—fresh fruits or vegetables that arrive on doorsteps overripe or with blemishes and discoloration will set ecommerce back. All in all, one thing is crystal clear: the recipe for success begins and ends with fresh.
