Retail development trends and hypotheses are so diverse now it baffles one to pick the most important ones. Still, we will try to do this painting a picture in large strokes and then go deeper into detail.
The first trend is unambiguous — buyers will be shifting online more and more rapidly every year. This trend is no longer challenged by anyone: e-grocery is growing exponentially. Grocery shopping is a monotonous business, filling the same basket of 60–80 SKUs over and over again; this definitely accelerates automation as the most convenient consumption model. With the outflow of shoppers, stores will become smaller in size or will add other functionality on their premises.
What kind of functionality? An obvious consequence of the increase in the share of distributed food delivery to households will be the conversion of stores’ retail space to dark stores. Although delivery is the obvious option, retailers will most likely extend the dark store format to serving customers using samples on the shelves, while purchases will be collected in the dark store.
Let’s look at one of the possible models of a grocery store.
Part of the store space is occupied by a large storage area — twice as big as the showroom — from where the goods are delivered to customers.
The showroom is relatively small and features the assortment to be offered to the customer. Customers pick a product, scan it using a mobile app and put it in the virtual cart. At the same time, store employees collect the goods and hand them over to the customer upon payment.
Due to a large storage space, it is possible to expand product range and speed up the sale severalfold. There will be no need in merchandisers (as there is no empty shelf problem). It will also allow for reducing interior design expenses since there are no cash registers, and avoiding many other issues that traditional stores come with.
Retailers, supermarket chains and restaurants are all taking part in the battle for the share of stomach. The pandemic prompted many people to use restaurant delivery. Food retail has long been filling in the niche of ready meals with their own culinary departments. At the same time, the restaurant market that competes with grocery stores for the customer and their wallets is changing rapidly. Changes in public catering model are to certain extent to the benefit of retailers.
The restaurant segment has a growing share of dark kitchens: small or large kitchens that have no seating space and only offer delivery using delivery services or their own staff. Such kitchens are very similar to the prepared meals departments in grocery stores.
The market of meal delivery is growing rapidly, and the delivery time matters a lot. Dark kitchens in supermarkets will provide an advantage in the fight for the customer’s stomach. The demand for ready meals will lead to the expansion of retail’s own production, including on sales platforms. The advantage of dark kitchens is the proximity to the customer and the equipped production facility.
Another very important thing is that retail will probably become a distributor of basic goods, not a seller. Here’s the thing. In the future — and in some countries today already — retail will face requirements that can be called institutionalized demands for social justice. Here are some of them:
- Excessive centralization or monopolization of distribution channels;
- Adverse effect on the environment: excessive packaging and food waste;
- Large stores take up public spaces;
- Production of low-calorie foods for a healthy diet while increasing the prices and boosting revenues;
- Stimulation of excessive consumption which leads to the exploitation and erosion of the topsoil, and environmental degradation, leading to the direct harm to health;
- Overproduction supported by retail chains on one hand, and a huge number of those starving on the other hand;
- Some also accuse retail of using digital tools to streamline delivery which aims not to lower the prices for the customer, but to bring the shareholders even more money. They believe that these tools can be as efficient in the hands of the state as that of the private companies;
- The data for digital algorithms is collected from the customers by retailers, while it is supposed to belong to the society and everyone who is part of the production chain. For instance, in Australia many suggest nationalizing retail chains claiming that “food is a human right, not a subject of sale.”
In the western countries, virtually everything is now being revised — and retail is no exception in this regard. As you can see, western society has too many claims against such a relevant industry, and at least some of them are going to be satisfied as a result of this pressure. They should be considered when building a development strategy.
These ideas might seem too ‘socialist’ — yet, if we abandon ideological clichés, how will these efforts change the retail sector if partially implemented? There will be a fairly large amount of basic goods to be distributed to meet social needs — the so-called social minimum food product basket. We will see products offered in a new type of packaging looking very simple just to preserve their quality, with no colorants used, thus making it a rather impersonal basic product. In exchange for the opportunity to distribute it, retailers will be able to sell products that go beyond the minimum food product basket. A simpler packaging will reduce the overall price of basic products.
There is another trend slightly related to the previous one. When browsing a grocery store, we see a package but not the product itself — while a digital platform allows us to see the contents of the package by viewing images of the products inside, and to pick items. The aspect of visual packaging design will eventually shift solely towards function and principles of sustainable development as in the digital world we will have the opportunity to view a product before buying it. If packaging begins to lose its advertising function, then ads will shift to digital devices in the store which will display quality and functionality of the product — that is, we will see digital ads in the store instead of physical advertising.
• In-store search and navigation will be developed to improve the shopping experience. The development of in-store navigation will provide an opportunity to guide buyers’ routes.
• AI-based optimization of supplies and stocks will become and important focus of digitalization in grocery stores; its consistent implementation can produce significant economic benefits.
• Stores will have an increasing amount of self-checkout and scanning stations as well as payment options.
• With the shift to online shopping, traditional convenience stores with over 5,000 SKUs will reduce the product grid to 1,500-2,500 SKUs. The grid will include only top selling items, while less relevant ones will be shifted to online platforms.
• Many manufacturers will try to build direct connections with consumers and offer the best price — and grocery retailers will have to respond to this challenge, and most likely by starting to expand their ecosystem for customers to feel additional benefit of purchasing the product and introduction of bonus points to be used for payments within the ecosystem.
I will once again briefly list possible trends to shape the future of grocery stores:
1. Smaller retail area.
2. Increasing storage space through reducing retail area.
3. Increasing own production in grocery facilities.
4. Retailers will distribute basic food basket in exchange for the opportunity to conduct sales.
5. Change in packaging.
6. Creating and developing search options in physical stores.
7. Optimizing AI-based supplies.
8. Expanding self-service checkout area.
9. Reducing the number of SKUs in stores.
10. Expanding retail ecosystem.
You can learn more about the future of retail, technologies that improve customer experience, business process automation, and ways to solve the issue of retail staffing shortages at the upcoming event, New Retail Forum 2021, to take place on September 9-10 at Skolkovo Technopark.
By Boris Agatov, consultant in innovative retail, CEO of ProjectLine, 4 Generation Store concept strategist