The grocery industry is constantly changing and new improvements might pass unnoticed. That's because most changes made by retailers are incremental. Processes are refined and become more efficient, inventory control and product availability improvements are instituted, and new store formats are tested. Ergonomics are improved, and initiatives to enhance product freshness are undertaken.
Radical change occurs less frequent. "True [radical] transformation in this sector comes along only once every few decades,” notes a recent McKinsey report (The Future of Grocery Retail in a Digital World). “And when these transformational events occur, they nearly always create new winners and leave a trail of casualties in their wake.” To help better understand today’s shifts in grocery retail, McKinsey suggests reviewing the three “ages of modern retail” to understand the fourth.
Retail 1.0: The Birth of the Modern Supermarket
Retail 1.0 started in the early years of the 20th Century through the launch of Piggly Wiggly. Founded in Memphis, Tennessee in 1916, the iconic innovator developed a way for customers to serve themselves, rather than the existing practice of presenting a grocery list to a counter clerk who would fill the order. Piggly Wiggly claimed to be the first retailer to offer open shelves, price marked items and checkout stands. By the early 1930s, over 2,500 Piggly Wiggly stores spanned the United States, and other grocery chains adopted the concept. Supermarkets subsequently developed numerous incremental changes to enhance their value.
Retail 2.0: The Hyper-Sizing Trend
The birth of the hypermarket took place in suburban Paris in 1963. And while the first Walmart appeared in Arkansas about the same time, it took several years before it offered fresh food.
As the McKinsey report states, “the key idea [behind hypermarkets are] ‘everything under one roof,' with that roof being a pretty big one." The modern hypermarket represented a dramatic step forward regarding "space utilization, productivity, efficiency and cost management." In the process, it offered customers lower prices and overwhelming selections. Hypermarkets proceeded to spread across France and Spain over the following 15 years, and subsequently around the world. In the U.S., Walmart took the hypermarket concept a step further in the 1990s and 2000s by introducing its even more massive Supercenters.
Retail 3.0: The Rise of E-Commerce
E-commerce emerged as a trend in the early 1990s. Amazon was launched in 1995 and in 1997, the first grocery e-commerce company began. Successful companies in the e-commerce space today include a mix of conventional retailers as well as new entrants such as Peapod and Ocado. Amazon has been running its AmazonFresh service in Seattle since 2007, and it is now available in several cities.
While the number of e-commerce players that will survive is uncertain, there is “a scale that will allow the very best to survive and thrive.” And as those business models stabilize, leading companies making strategic moves will propel grocery retail into Retail 4.0.
Retail 4.0: Multi-Channel or Omni-Channel
As digital and bricks and mortar continue to converge, the McKinsey report states that the grocery industry is on the verge of the next major shift. It notes that the role of the store is shifting, with innovations ranging from the introduction of virtual stores to the creation of dark stores to service e-commerce customers.
While the McKinsey report isn't sure yet what the next shift will entail, it offers several trends to watch that it believes will be instrumental in shaping the future of grocery retail. It singles out new approaches to customer order pickup, social media, personalized marketing, advances in self-checkout, digital dashboards on the sales floor and dynamic pricing. Such trends underscore the impact that technology will play in shaping the future of retail and the urgency to embrace it.