The way we shop has changed irrevocably in the last 10 years, with shoppers combining multiple retail channels to find the best overall range, value and convenience for them. Produce Business UK examines these channels and considers how retailers and suppliers alike can prepare themselves for the inevitable challenges and opportunities
Although large physical supermarkets will still account for over 50% of sales in UK grocery retail over the next five years, three popular channels – convenience, discount and online shopping – are pegged to drive the overall growth; cementing the birth of a new era of multi-channel (or omnichannel) retailing.
“Many businesses don’t feel ready for multi-channel but standing still is not an option because the trend is here now,” points out Sarah Coleman, senior retail analyst at IGD. “As a business [retailer or supplier] you need to think about your strengths and where you want to go. Make those choices and decide what makes sense for you.”
With the varying channels set to become even more important over time, Bryan Roberts, director of retail insights at Kantar Retail, says retailers and their suppliers will need to develop new skills in order to succeed in a multi-channel environment.
“Although there are some notable exceptions, the hallmark of a successful retailer will become the ability to seamlessly serve shoppers across different channels while speaking to the shopper with a united voice across all platforms,” he explains. “From a supplier perspective, understanding the differing needs of both the shopper and the retail customer across different channels will become a vital skillset.”
In February, French retailer Leclerc reported a 1.4% increase in group turnover for 2014, and a 1.8% growth in France alone (both excluding fuel), proving – it said – that its evolution towards a multi-channel strategy was the right move. Group president Michel-Edouard Leclerc claimed consumers’ changing behaviour had confirmed the validity of the retailer’s decision to develop across multiple channels.
One of the cornerstones of Leclerc’s strategy is the Drive format (where shoppers place their order online and pick up their purchases two hours later at a store of their choice), which has continued to develop apace, with 111 new openings in 2014 bringing the total to 557 (Leclerc is aiming for 800 by 2016). Over €1.9 billion (£1.4 billion) of turnover was achieved via Drive in 2014 and Leclerc is testing the Click and Collect format in Poland, Spain and Portugal.
Multi-channel retailers in the UK are also now focusing on locking in shoppers across all channels. “They realise that multi-channels shoppers are more valuable,” points out Coleman. “Sainsbury’s recent annual report (and it was a similar story for Tesco) indicated that shoppers across all formats are highly valuable – even worth two times the supermarket-only shopper.”
While the multi-channel concept is not that important or recognised by shoppers since they consider it to be simply shopping, IGD estimates that UK shoppers are currently using an average of 3.9 retail channels each month, which will grow to 4.9 by 2016/17.
Nonetheless, Coleman claims physical stores are still relevant and won’t disappear anytime soon. “Only 0.5% of shoppers are doing all of their shopping online because they find it difficult although Click and Collect is helping so this figure is set to rise,” she notes.
Furthermore, she says 30% of shoppers are also using online to find the best retail offers via websites like mysupermarket.co.uk or moneysavingexpert.com, as well as Aldi’s own website which promotes its weekly fruit and veg ‘Super 6’ deal and fresh meat offers.
How can you succeed in multi-channel?
With multi-channel usage on the rise, retailers are under pressure to offer formats across multiple channels and to keep up with their competitors and counterparts, while suppliers need to be where the retailers are too.
To achieve profitability, Coleman advises retailers to offer more routes to market. “The ultimate goal is to develop a seamless multi-channel or omni-channel,” she says. “But you can’t forget that the challenges are considerable, especially the cost to serve.”
For suppliers, multi-channel is all about adapting to shopper behaviour. “They need to increase their efficiency in the supply chain, as well as their offer,” continues Coleman. “On a positive note, suppliers have more choice about who they want to serve because in addition to the traditional retailers and discounters there are retailers like Groupon and eBay.”
That said, suppliers are going to have to deal with a growing range and complexity, smaller and more frequent orders, reducing lead times and increased numbers of delivery points. As such, Coleman says suppliers will need to develop a tailored solution for each retailer and channel, and to think hard about who they want to supply and where they’ll win.
“Maybe you should focus on a single channel or on certain customers,” Coleman suggests. “Ask yourself, do I have expertise in all these channels? There are also opportunities for suppliers to sell directly to the consumer via smartphone apps or by partnering with retailers.”
What is the key to success?
Both IGD and Planet Retail have put forward their main strategies for success. IGD has a four-pillar model for multi-channel business:
- Shopper understanding – put them at the heart of your business.
- Retailer and supplier collaboration – an opportunity to find a mutually beneficial relationship.
- Integrated supply chain – a tailored offer is the key to delivering what the customer wants.
- Capability – some strategies will require a rethink and you may need to retrain or bring in new expertise.
Drilling down further, Planet Retail identifies six fundamental steps for omnichannel success within its white paper ‘Delighting the Modern Shopper’, published in conjunction with GS1 UK:
- Provide seamless online experiences – with consumers switching between devices when shopping, delivering quick and easy experiences across all screens is imperative.
- Empower smartphone users – it’s essential to accommodate the needs of consumers using mobiles to help inform their purchasing decisions when out shopping.
- Create a compelling in-store environment – the future of stores hinges on the ability to serve customers across all channels. Retailers need to understand what technology works for its customers and where it needs to be placed.
- Contextualised and personalised shopping – demand for relevant, tailored shopping is on the rise. Personalising every touchpoint, and contextualising experiences will drive loyalty and spend.
- Social media can influence purchasing decisions – with consumers utilising social media when making purchasing decisions, retailers need to get closer to their customers, provide genuine compelling content and encourage social sharing.
- Fulfilment capabilities are a competitive differentiator – poor fulfilment capabilities will have a detrimental impact on sales.
Of those six elements, fulfilment capabilities have emerged as the competitive differentiator, with Planet Retail finding that 50% of shoppers claim their choice of retailer is influenced by the option of same or next-day delivery.
“Focusing on speed and reliability is no longer enough to win the consumer,” points out the analyst’s research director Malcolm Pinkerton. “Providing flexibility and choice, while shortening the distance and time between product and consumer, must be a priority for retailers.”
What are the trends within multi-channel?
With the traditional retail channel boundaries blurring, three key areas are emerging: Click and Collect – which is a merging of the digital and physical; ‘discountvenience’ – a blend of discount retailing with convenience; and foodservice, which is also increasingly merging with grocery retailers.
“Click and Collect is flourishing – it appeals to those who don’t shop frequently and busy workers,” says Coleman. “Different concepts have evolved – either ordering your groceries and picking them up in store or at a dedicated area of the car park. However, that means retailers lose the opportunity for impulse buying.”
Asda and Tesco have been particularly busy in the Click and Collect arena, while Sainsbury’s launched in March its own Click and Collect service, with 100 stores set to deliver the service before the end of the year. By 2018, Asda will also open 100 Click and Commute points which allows commuters to pick up their groceries from automated pods via a specific code. “This is efficient for both the retailer and shopper,” notes Coleman.
The so-called discountvenience trend, meanwhile, is not just limited to the UK, and it’s going both ways as discounters offer convenience ranges while c-stores roll-out discount lines. “Booker’s Premier Stores has introduced the Family Shopper banner which focuses on convenience and frozen ranges with a clear value message,” points out Coleman.
“There are only 20 stores so far but Booker has plans to open 400 in the next three to four years. Tesco has opened its One Stop local format too. Aldi, meanwhile, is identifying opportunities on the high street with a smaller range and an increased focus on food-to-go.”
Foodservice is also merging with grocery retailers. One example is Tesco’s Philpot Lane Express convenience store in London, which spotlights different meal solutions during the day; from breakfast pots and lunch options to dinner dishes. Spar is also offering on-site Subway, Greggs and Costa coffee outlets, while its Hackney store features a burger bar (Eat 17) and a full service restaurant.
Where did multi-channel come from?
IGD says multiple retail channels started to emerge on the back of changing shopper behaviour as people began to shop across supermarkets, convenience stores (c-stores), hypermarkets and online. Data has proven that it’s happening and three trends have consistently emerged:
- The rise of the discounters – IGD says its Shopper Vista data shows 50% of consumers have used discounters in the last month and 14% say they are using discounters as their main stores. The use of the discounters is now neither limited to demographics nor top-up shoppers.
- Online – it only represents 5% of the UK retail market but the growth is phenomenal. IGD expects online to double in the next five years.
- Shopping little and often – consumers are shopping every few days or even for every meal. C-stores provide a local solution for this and the multiples have been tapping into this market.
Where is multi-channel headed?
IGD forecasts that supermarkets and hypermarkets will account for a 34.9% share of the UK grocery market in 2019, down from 42.2% in 2014. At the same time, convenience is tipped to grow by £11.6 billion in additional sales between 2014 and 2019, while the discounters will expand by £10.6 billion and online will increase by £9.2 billion over the same period. “The supermarkets will see their market share and sales fall but they will still occupy the largest share of the market overall,” notes Coleman.
Convenience: Many operators are developing multi-format stores with neighbourhood outlets, high street stores, etc. Costcutter has revamped its Kwik Save fascia and broadened its offer and own label range, especially with fresh and bakery taking up more space in store. C-stores are now doing local sourcing – their missions and solutions are increasingly important with concepts like food-to-go and dinner tonight. They are also cross merchandising categories which is helping shoppers to put together meals and retailer to drive spend. Other concepts in convenience include Amazon lockers, Click and Collect and e-vouchers on smartphones.
Discount: More people want to shop at discount stores and the response has been new stores and the discounters are opening up in new locations too with small high street stores. Aldi has done just that in London with its Kilburn and Finchley stores, while planning to open up its biggest store in Lincolnshire. The quality of food on offer at the discounters is good and improving and in the future this will be enforced by strategies like Lidl working in collaboration with a Michelin-starred chef. The discounters’ own label is developing too with tiering coming into play, while brands are increasingly being sold in stores too. Overall, fresh food remains a real focus at the discounters.
Online: Shopping online will double in size over the next five years, and IGD says there are five key trends to watch out for:
- New players emerging – Morrisons has hooked up with Ocado, and Aldi has said it will trial online shopping in the UK. There’s no sign of AmazonFresh (groceries to your door) in the UK yet but IGD says to watch this space.
- Smartphones and tablets – there’s an increasing use of these devices for shopping on-the-go or simply to add items to your shopping list while you’re out and about. It’s all making shopping online less of a chore.
- Click and Collect – there was significant growth in this area this year, driven by Tesco and Asda.
- Increased dark store capability – retailers are building in densely popularly areas to increase the volume of their orders. This gives a better experience for in-store shoppers who aren’t affected by in-store picking leading to availability issues.
- Delivery passes – Ocado, Tesco, Asda and Sainsbury’s are offering these which is increasing the frequency of online shopping and leading to slightly smaller basket. But, ultimately, it’s helping retailers to lock in customers.
Click here for IGD’s overview of the multi-channel.
Click here for IGD’s full report on how the supply chain can win the multi-channel challenge.