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The two strategic updates grocery retailers need to make in 2018

Posted by IFCO Systems
May 10, 2018

Things are changing so quickly in the grocery supply chain that it seems like a natural response is to wait and watch. Unfortunately, that’s exactly the tactic that distributors can no longer afford to take, according to guidance from Bricks Meet Clicks, a strategic advisory firm.

The urgency for grocery retailers to change is underscored by recent news that retailers are filing for bankruptcy at record rates. “Just four months into the start of 2018, 11 retailers have already filed for bankruptcy or announced liquidations,” Business Insider reported in April. It attributed the shakeup to changing American shopping habits such as online purchases along with aggressive store growth over the years.

BMC recommends concentrating on two strategic areas, cautioning that it is crucial to focus on both at the same time. Such an approach will enable retailers to better look at new tools and elicit innovative thinking about routine processes.

These strategic imperatives include meeting the changing preferences of customers and finding new ways to boost profit.

Imperative #1: Meeting the changing preferences of your customers

BMC believes that there are two interrelated trends that influence shopper behavior: personal values and convenience. “Both are reflected in the new solutions and experiences that are getting the most attention today, and they deserve even more attention,” according to Hayley Peterson at Business Insider. 

Evidence of personal values influencing the shopping trip is easy to find. For example, shoppers are interested in locally sourced and organic produce or Certified Humane Raised & Handled meat.

The importance of personal values is being captured through research. A recent Cone Communications survey found that 87% of consumers are apt to purchase a product if the company supports something they care about. A Nielsen study showed that 72% of Millennials were willing to pay extra for sustainable products. And as Charlie Vanek noted in Multichannel Merchant, “many retail brands are taking note and action. For instance, Unilever recently purchased Seventh Generation and Schmidt’s Naturals to address consumers’ demands for sustainable and naturally sourced products.”

The other customer preference trend is convenience. Digital technology has created new options for shoppers, and “the appetite for solutions that reduce effort is growing,” says BMC. Options such as meal kits, home delivery, and click-and-collect are becoming increasingly attractive for busy shoppers.

Ultimately, BMC notes, successful retailers will deliver what the shopper is looking for while providing tools that enhance convenience and reduce shopping effort.

Imperative #2: Finding New Ways to Boost Profit

One way to promote profitability is to manage P&L at the item level. If a SKU is a loser and there isn’t an opportunity to cut cost or increase the price to bring it back to profitability, then it probably should be delisted.

Another way to boost profit is through reducing overall costs. BMC identified several cost reduction approaches that have not been widely implemented, including mobile checkout options, electronic shelf edges to automate price changes, and more display ready shipping containers which can streamline shelf stocking. RPCs are a great example of display-ready packaging which can reduce stocking labor by up to 53%.

The third path to greater profit is through increased revenue. BMC recommends looking for premium pricing opportunities such as next-generation private label products, while simultaneously making the shift from off-cost pricing to value pricing. Other ideas include taking a broader perspective on where, how and when profit can be generated - whether further upstream through a company’s private brand manufacturing, or by being sensitive to pricing opportunities during the day or week to better target offers.

The time for waiting is over. New tools are becoming easier to adopt, more affordable, and are possible sources of competitive advantage, says BMC. Responding successfully to changing customer preferences and finding new ways to boost profit are strategic improvements retailers need to make in 2018.

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