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Five worldwide grocery trends you can’t afford to miss

We all know that change is inevitable. But in the grocery industry, it has become more than inevitable. It’s essential. Today’s grocers operate in an environment that refuses to stand still.

Customer tastes and demographics, as well as a host of outside forces, such as high gas prices and environmental sustainability, are reshaping our industry. Meanwhile, technology is speeding ahead at a frightening pace, forcing us to rethink the way we’ve always done business. Anyone who stands still in grocery today is going to fall behind.

My company, IGD (formerly the Institute of Grocery Distribution) is a non-profit organization based in the United Kingdom that works with supermarket retailers and consumer packaged goods manufacturers across the globe.

So what are we seeing around the world?

New formats, big and small

I suppose the contest for best store format has been raging ever since the first shopkeepers opened their doors. Lately, it’s been the larger formats that have been most successful. That may be about to change.

Recently we surveyed leading global retailers and vendors on the future of international grocery retailing. These people predicted that online, convenience and discount formats would enjoy the strongest growth over the next 12 months. If this proves correct, we might soon reach a tipping point, where large-store economics no longer add up.

In Europe, several grocers are keeping “small” in mind as they flex their approach to store-format expansion. In France, urban convenience formats are seeing strong growth with, for example, 50 new stores targeted by Auchan’s A2pas concept. This food-focused convenience format ranges in size from 2,700 to 6,000 square feet with a market-style fruit and vegetable area designed to wow on entry.

Online click-and-collect solutions are also increasingly commonplace. The French retailer Leclerc, for example, lets shoppers order their products online, then pick them up at a dedicated point at one of its stores But don’t count big stores out just yet. In Europe, hypermarkets aren’t surrendering ground to the peppy upstarts without a fight.

Carrefour Planet is one of the most prominent examples of hypermarket regeneration in Europe and the rollout of the concept, as I write this, will be eagerly watched. Planet emphasizes category excitement and fresh food in a big-box format. Each store has a zoned approach with a strong focus on partnerships with branded suppliers. The Mostoles store in Spain is the most recent version of the format and the one that will form the basis for a wider rollout of the concept.

To the Internet!

You’re probably tired already of hearing how grocers need to pay attention to social media. But I’m going to ring that bell one more time. Globally, mastering Twitter and Facebook is becoming as crucial to success as standard retail skills such as implementing pricing strategies and curbing out-of-stocks.

Enormous amounts of online connections are taking place among retailers, consumers and manufacturers. We’re seeing web reviews, feedback panels, dedicated fan clubs and user-created content emerging as new communication channels. Shoppers are giving their opinions and smart companies are using these to improve products and services.

Co-op Schweiz, one of the largest retail groups in Switzerland, has a club initiative called Hello Family that offers substantial discounts. Club members can vote online for offers they wish to see become a “Promotion of the Month” and they can also download money-off vouchers. Further benefits of the service for club members include a dedicated Internet platform with contests and free advice on hot topics like health and childhood nutrition.

Across the globe retailers are doing some great experiments using social media. Some are even getting shoppers involved in product creation. For instance, British supermarket chain Waitrose has set up an online panel at WaitroseKitchenTable.co.uk where customers can, as the website says, “have a chance to tell us what you love the most and where we can improve.” Asda, the U.K. subsidiary of Wal-Mart, created AsdaChosenByYou.com, which lets customers give their take on Asda’s recently launched mid-tier private label brand, called “Asda Chosen By You.” The 3,500- SKU line was created with input from customers. Some 40,000 people did 200,000 taste tests.

Online is also becoming a hot spot for consumer packaged goods brands. This is especially true as the battle between private label and national brands intensifies. Following a successful experiment in the U.S., Procter & Gamble set up a Max Factor online boutique for U.K. consumers last July, allowing them to make a direct purchase of its brand (with pricing and delivery mechanics controlled by Amazon). This closely watched initiative has been followed up by fast-fashion retailer Asos, which launched an entire Facebook store–Europe’s First–in January.

The big game-changer: Smartphones

The Internet has already had a profound impact on how people shop for groceries. In Europe, for example, it is an established sales channel and a key information source for shoppers. Until recently, its growth had been driven by people ordering products from computers but that’s now being eclipsed by smartphones.

The application of smartphones in a grocery context is profound. Apps have been devised to drive brand engagement and in some cases, draw shoppers into stores. Furthermore, the smartphone has the potential to influence purchasing decisions by providing consumers with much greater information when they’re standing in the aisles ready to make a purchase. Shoppers at ICA supermarkets in Sweden can find extra sustainability and nutritional information about dairy products through their phones. In the Netherlands, grocer Albert Heijn’s “Appie” application allows shoppers to scan product barcodes, build a shopping list and reorder products.

In the U.K. especially, mobile is transforming grocery. Tesco launched the country’s first transactional barcode scanner app in October of last year, enabling shoppers to scan items at any time and add them to their shopping list. Marks & Spencer, meanwhile, reported that 1.2 million customers used its transactional mobile website in the four months following its launch in May 2010. The numbers from Ocado, a online-only grocer in Great Britain, now receives more than 12 per cent of its orders through smartphones, following the launch of the latest version of its “Ocado on the Go” transactional app.

And just as grocers are giving shoppers new ways to order products, they’re also providing more ways to get the items into their home. Last August, Tesco unveiled its first drive thru supermarket at a store in Baldock, Hertfordshire. Customers order online, choose a collection time and later pick up their order from a designated area outside the store.

Retailers such as Tesco and Waitrose are also building so-called “dot-com stores” where orders are taken and personal shoppers put together the items that are then delivered to the customer. Waitrose’s fist dot-com store is going to serve the London area. The store will be staffed by Waitrose employees who will pick products by hand, thereby allowing the retailer to replicate its strength in customer service.

Let’s get together!

Anywhere you go in the world, grocery retailing is a fiercely competitive business. Yet today, companies that are often competitors are looking to work together in some areas of the grocery channel to reduce costs. Our research shows that globally one in five suppliers (21 per cent) has a strategic supply-chain partnership with a key customer, up from 15 per cent the previous year. This indicates that the pressure to perform more efficiently is really starting to have an effect.

A few examples worth noting: In France, Henkel, Colgate-Palmolive and GlaxoSmithKline, supported by logistics provider FM Logistics, are pooling delivery shipments. All three of these companies have combined their flow of products for delivery into retailers’ distribution centres. Sara Lee also became involved in the project, which has led to improvements in in-bound service levels and a substantial reduction in road miles.

More recently, Heinz has struck a partnership with Coca-Cola to use the soft drink company’s Plantbottle technology for its tomato ketchup range. This is part of Heinz’s global sustainability program which, according to Heinz, targets a reduction in greenhouse gas emissions, solid waste, water consumption and energy use by at least 20 per cent by 2015. We may well see other examples of manufacturers sharing technologies.

Retail Ready Packaging (RRP) is a good example of where collaboration can be useful. Retailers have adopted different approaches to RRP, but the most sustainable benefits have been achieved when retailers have adopted a category-by-category approach. This requires retailers to work closely with groups of suppliers in a particular category. The results we’ve seen so far improve efficiency by simplifying the replenishment process for in-store teams. Plus, savvy RRP creates an attractive looking and easier-to-shop category for customers.

Watching the I’s and Q’s

Pricing seems to be the issue that’s top of everyone’s mind. In our recent International Grocery Retailing Survey, we asked more than 250 retailers and manufacturers, from 40 countries, to tell us what the greatest threats to their business would be over the next year. The top three on most lists were all price-related.

However, price is not the only factor on grocers’ minds. Businesses have been taking a number of steps to reinforce value since the start of the financial crisis in 2008, and many of these do not sit within the price camp. More than half (53 per cent) of grocers and manufacturers have been placing stronger emphasis on brand values in the last 18 months, while 46 per cent have been focusing on product quality. The future also looks positive, with four in 10 respondents to the survey rating innovation and differentiation as two of the most important issues for retailers and suppliers over the next five years.

As you might expect, companies are finding their own, unique ways to be innovative. But the best are doing it in such a way that fits nicely into their business model and customer expectations of the brand. Take Whole Foods’ dedicated area on its website to let customers know the origin of its meat products. The site also provides additional tips from producers and recipe ideas for particular types of meat.

Manufacturers, meanwhile, are mandating innovation. Kellogg plans to achieve 25 per cent more sales from innovation launched in 2011 than it did in 2009 as part of a strategic move from renovation to innovation for existing brands. As part of this strategy, the group is placing increased focus on consumer need states and differentiation based on the emotional benefits of each product.

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