RL - Nov/Dec 2017 by ensembleiq

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Captain America! Kroger CEO Rodney McMullen’s plan to become “America’s Grocer.” november/december 2017

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Retail Leader NOVEMBER/DECEMBER 2017 VOL. 7, NO. 7

6 EDITORIAL

Senior Sales Manager Theresa Kossack tkossack@ensembleiq.com 214.226.6468 Account Executive Matt Kavney mkavney@ensembleiq.com Office 443-203-6379 Cell 202-607-5368

12 THE DATA DIFFERENCE.

Market Track CEO Dennis Moore and InfoScout CEO Jared Schrieber talk about what’s next for retail.

22 STRATEGY

WHAT IS A MEAL KIT ANYWAY? 2018 promises to be a shakeout year for the meal kit category.

CUSTOM MEDIA VP, Custom Media Pierce Hollingsworth phollingsworth@ensembleiq.com General Manager, Custom Media Kathy Colwell kcolwell@ensembleiq.com

8 26 COVER STORY

CAPTAIN AMERICA! Kroger CEO Rodney McMullen’s plan to become “America’s Grocer.”

36 SUPPLY CHAIN

AUDIENCE DEVELOPMENT Director of Audience Development Gail Reboletti greboletti@ensembleiq.com Audience Development Manager Shelly Patton spatton@ensembleiq.com

ART/PRODUCTION

DELIVERING AUTOMATION. UPS has big ideas about how it wants to be regarded as an innovative technology company focused on disruption.

38 SOCIAL RESPONSIBILITY

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PLATFORM FOR PROGRESS. Salesforce Founder CEO Marc Benioff has unconventional advice for retailers and CPG companies on their transformation journey. DIGITAL’S PROMISE. Stuart Aitken CEO of 84.51° and Kroger board member.

Retail Leader.com NOVEMBER/DECEMBER 2017

MARKETING Senior Marketing Manager Courtney Hofbauer chofbauer@ensembleiq.com

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50 WHAT’S NEXT

Managing Editor Gina Acosta gacosta@ensembleiq.com 813-417-4149

Senior Sales Manager Judy Hayes jhayes@ensembleiq.com 925-785-9665

WINNING WITH EXPERIENCE. Eataly offers retailers timely lessons in the power of presentation.

19 THE NEXT BEST THING. We are at the leading edge of an era in which tech will change the way retailers and brands engage with consumers.

Editor-In-Chief Mike Troy mtroy@ensembleiq.com 813-857-6512

Associate Brand Director Mike Shaw mshaw@ensembleiq.com Office 201-855-7631 Cell 201-281-9100

8 GROWTH AND BUSINESS DEVELOPMENT

A NEW BREED OF CIO. Heightened expectations of CIOs mean some may not be re-hired if they applied for their current position today.

EDITORIAL

ADVERTISING SALES & BUSINESS

THE LANGUAGE OF RETAIL. The jargon-filled technology world outdid itself in 2017.

14 TECHNOLOGY AND INNOVATION

SVP, Group Brand Director Katie Brennan kbrennan@ensembleiq.com 917-859-3619

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letter from the

EDITOR

The Language of Retail The jargon-filled technology world outdid itself in 2017 with talk of artificial intelligence, machine learning, deep learning, mixed realities, neural networks and edge computing. These words were heard a lot in 2017 and they will be heard even more in the coming year. And for good reason. Each is incredibly important and speaks to how technology is dominating the future of the retail and consumer goods world. A world where connected devices anticipate shoppers’ needs, voice shopping becomes common, supply chains fulfill orders faster and faster and physical stores search for new ways to remain relevant. It is an amazing time to be part of the incredibly dynamic retail industry, something we are reminded of again this holiday season. Retailers have never offered such a high level of physical and digital integration, with many well along the path of delivering the seamless vision talked about for years. As the industry continues to move forward in new and interesting ways the language of retail has undergone a major shift. It is dominated by talk of technology and all its current and future potential. For those without IT degrees it can be hard to make sense of the acronyms and phrases mentioned at the start because they get tossed around a lot. They also tend to be used interchangeably by speakers at conferences, in articles and in casual conversations. This creates confusion and can be unsettling for anyone (me) who feels compelled to define the various technologies as a baseline for understanding the most important forces affecting retail. Turns out, precise definitions in the tech world are hard to come by. Ask 100 retail executives from merchandising, supply chain and marketing to define AI, for example, and you’ll get 100 different answers. Attend a tech conference and ask 100 data scientists, network engineers and CIOs the same question and you will still get 100 different answers. The difference is the tech folks will have a reasoned debate about the variances of their definitions. That explains why even when there is a definition of AI, it can be very convoluted and sounds like a committee wrote it. Here’s how AI was described in a recent research study funded by a major tech firm: “AI is the ability to automate enterprise decisioning using human-to-machine cognitive interactions where machines are able to augment and assist human capabilities by sensing and continuously learning, reasoning and inferring, and deciding and acting to drive a business outcome.” Not to pick on AI, definitions of other tech terms are equally squishy, but the point of the study was to explore the state of artificial intelligence. The research included 260 IT and business decision-makers at the VP level or higher from organizations with global revenues of more than $50 million. Definitions matter for these folks because they are defining the scope of projects, hiring consultants to advise on strategy, directing internal staff and allocating ever larger budgets. Roughly 80% said that “some form” of AI is already in production in their organization and one third report plans to increase spending on AI technology in the next three years. In the next two years, 61% said their companies expect to fill the position of Chief Artificial Intelligence Officer. So in addition to all the other acronyms we have the new title of CAIO. One of the key responsibilities of this position should be communications so the conversation can shift to what AI, or any of the other tech buzzwords, “does” from what it “is.” Making any technology conversation more about the use case than the underlying technology is how IT folks help their organizations win. They can continue to enjoy professionally stimulating discussions about nuanced definitions with peers at industry conferences, but don’t clutter the minds of business users focused on applying technology to create value. This bifurcation becomes more important in the future with technology becoming more sophisticated and powerful. Organizations who exploit it most effectively will be those that bring extreme simplification to the user experience. RL MIKE TROY Editor-In-Chief mtroy@ensembleiq.com

Retail Leader.com NOVEMBER/DECEMBER 2017

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Winning with

EXPERIENCE

EATALY OFFERS RETAILERS TIMELY LESSONS IN THE POWER OF PRESENTATION. > By Gina Acosta

The double sliding glass doors at the entrance of the Eataly store in Milan, Italy, look like the doors to any other U.S. grocery store. But step inside and the similarities end. Eataly is one of the originators of experiential retail and its grocery stores, if they can be called that, don’t look, sound or smell like the typical American supermarket. It is a theater for the senses where the starring attraction is food and supporting roles are played by quality, service and presentation.

Eataly MIlan offers ample opportunity for dining and brings new meaning to the term “grocerant,” with more than 20 restaurants available to grocery shoppers.

Retail Leader.com NOVEMBER/DECEMBER 2017

The theater metaphor is appropriate because Milan’s Eataly, the flagship of the booming Italian food retailing chain, is housed in a converted theater. The building’s 55,000 square feet span four levels with a large central atrium that add to the theatrical presentation. In late 2017, Retail Leader visited the distinctive concept, which should be on the itinerary of every retailer wrestling with the challenge of ensuring their physical spaces remain relevant to increasingly digital shoppers. More often than not, the solution to doing so, especially with food retailers, revolves around elevating the store experience to give shoppers a reason to want to visit a store. Shoppers want to visit Eataly, which is why even on a mid-morning in late September the Milan location is quite busy. Italian, Spanish and American pop hits from artists such as Miley Cyrus and Enrique Iglesias fill the air and shoppers are greeted by a sight now rare in the United States: walls and walls of books, all related to food. Eataly Milan, the largest store in the chain, has three floors dedicated to fresh food, dry grocery items, beauty products and household goods, plus 20 casual restaurants focused on variants of Italian cuisine. The fourth floor of the building houses areas for administration, workshops, meetings and presentations. Each floor has grocery and restaurant areas, as well as production areas for cheese, bread, sweets and hot food. The store is arranged in a way that allows fluid transition from supermarket to restaurant, to cheese shop to wine bar. This fluidity contributes to the overall store experience, which makes Eataly a destination for foodies, the epicurious, local residents and chefs with exacting standards.

Walking into the main part of the first floor of the store, one is mesmerized by the natural light pouring in from seemingly all directions. To the left, stacks of organic sundried tomatoes in glass jars and cans of certified authentic San Marzano tomatoes were value priced at less than two euros for a large can. A cookware section led to a bakery featuring rolls studded with pistachios and olives. To the right, tourists wearing Nike T-shirts and Italian businessmen ordered gelato, coffee or pastry from one of the four walk-up foodservice counters. From the looks on the faces of shoppers, the aromas of butter, coffee, cheese and pizza were irresistible. The retail formula for privately held Eataly appears to be working. The company has been expanding globally since the chain was born in 2003 and now operates 34 locations. Next up for the Farinetti family that founded Eataly: the world’s first food theme park, in the northern Italian city of Bologna (See page XX.)

DESTINATION FOOD When Eataly opens in a city, be it New York, Chicago or Boston, it occupies a special place few retailers are able to achieve: a destination for locals as well as a tourist attraction. The Milan Eataly attracts more than 5 million customers annually, according to the company. Shoppers devour the experience so much so that Eataly’s customer service department is staffed by employees at the ready to ship merchandise to customers’ home countries. The appeal of the store is everywhere and a first time visitor immersed in the experience quickly loses track of time. For example, browsing the book aisles leads one to the center of the first floor, where the produce section beckons. Artichokes, lettuces, cucumbers and a spectacular array tomatoes so incredibly ripe and perfect they almost don’t look real. Produce is presented in baskets positioned on movable carts. There is no harsh fluorescent lighting, misters or refrigerated cases common in U.S. product departments. The presentation is clearly not driven by supply chain considerations common in U.S. grocers who rely on reusable plastic containers to replenish displays. Rather the intent is to give shoppers the feeling of buying fruits and vegetables from a cart at a local farm. It’s a strategy that seems to appeal as shoppers ogle and select items. One woman picked up a bunch of parsley, sniffed it approvingly, and wrapped it in brown paper

Eataly Milan features several levels of dry grocery space, a theater for entertainment, a pizza restaurant, and a farmers market in the middle of the first floor.

before paying at one of numerous checkstands integrated into the department to complement a central checkout area near the exit. At every Eataly store, shoppers can find fresh produce, meats butchered to order, several bakeries, seafood, freshly churned ricotta and mozzarella cheeses, cooking utensils, cookbooks, wine and Italian culinary products. The goal is to show shoppers that high-quality products and a high-quality food shopping experience are available to everyone.

TRANSPARENCY DELIVERED At Eataly Milan, shelves holding products, from canned tuna to pasta sauce, all have large labels explaining the origins of the foods: from the ingredients, to where the item was made, to the NOVEMBER/DECEMBER 2017 Retail Leader.com

> GROWTH AND BUSINESS DEVELOPMENT

Eataly Milan has a cold case devoted to mozzarella (above). It also has a produce section designed to look more like a farmers market, with no refrigeration (right). The store also does a good job of displaying its dry aged steak assortment (lower right).

reasons why Eataly chose to sell the product. This practice isn’t unique to Eataly, as Whole Foods and Walmart are known to call out with signing the origin of locally source items. However, Eataly takes it a step further and enjoys the benefit of being able to tout authentic Italian items. For example, a huge assortment of oils easily twice the linear footage of a typical U.S. supermarket, is labeled by category (olive, walnut, etc.) and region. There’s also a map of Italy showing the different regions where the oil comes from. An olive tree in a planter near the wall of oils lets shoppers know what kind of olive was used to make a particular oil. Authenticity abounds at Eataly because food is arguably Italy’s greatest contribution to the world. Shoppers fill their carts with fresh baked breads while they lick hazelnut chocolate gelato from cones baked in-store. Eataly stores don’t conform to the rules of category management, at least not how it is practiced in the U.S., with rows of shelves divided into two, four or eight foot sections and logical adjacencies. At Eataly, it is common to find jars of capers and pesto merchandised next to the latest Taylor Swift CD and fragrant soaps made with Italian olive oil. There are lots of jams and jellies to choose from, and there is a 20 foot tall fixture from which Italian chocolate cascades and fills the air with an aroma irresistible to chocolate lovers. On the second and third floors of the stores the hedonistic food experience intensifies. Meats and cheeses take 10

Retail Leader.com NOVEMBER/DECEMBER 2017

center stage with Eataly offering conventional cuts as well as dry aged beef displayed in a glass cooler. There is an eight foot wide refrigerated case devoted to just mozzarella. A rotisserie and hot food bar has plenty of tables and chairs next to a large stage where the store hosts chefs, musicians of all genres and civic leaders. An Eataly employee walks around offering samples of roasted pork on a piece of bread sprinkled with olive oil. There’s more CDs and more books and lots of cured meats — prosciutto, mortadella, bresaola. A young woman asks how much the truffles cost. She gets her answer, and keeps walking. A wine shop leads to several restaurants specializing in pizza, seafood and steaks. Cookbooks, cookware and apparel surround displays of electric mixers and fresh Italian melons. A man in a chef ’s uniform is making mozzarella from scratch behind a glass partition and he is narrating the

It’s no secret that today’s consumers expect personalized, relevant experiences with retailers and brands –

in the aisles, on their mobile devices or at the digital storefront. Amid increasing market disruption from established players and new market entrants alike, companies that don’t meet ever-changing expectations risk alienating their most profitable customers and losing market share. To exceed your customers’ expectations, you first need to understand your customers’ expectations. Better yet, how can you anticipate your customers’ needs to deliver the best possible experience? Enter customer data science.

Amount of extra spending by customers in loyalty programs compared with other retained shoppers Source: dunnhumby, 2014

Vast sources of data are now within easy reach – the media that consumers view, their cellphone GPS data, and even the weather in their local area can provide the starting point for an entirely new level of personalized marketing. Leading retailers and brands harness a myriad of data sources and innovative technologies to zero in on what shoppers are buying, when they’re buying it, and how frequently. Then, they execute data-driven shopper engagement strategies that maintain and grow both their core customer base and shopper loyalty. The end result? Happier customers who shop more frequently and boost basket rings. Let’s take a look at the top four things you can do to gain a solid competitive advantage using customer data science.

S P O N S O R ED CO N T EN T

the right time, and tailoring the brand messaging and tone to shoppers’ evolving needs. Lessons from overseas markets go far beyond the European Continent, however, which leads right into our next point: Go global.

2. Adopt the right global trends to create competitive advantage

Plenty of global grocery trends haven’t yet hit the United States full force. But they will – and grocery retailers can use data to make sure they’re ready.

1. Get a jump on market trends and disruptions In the current disruptive retail grocery arena, you can’t rely for long on assets like a historically strong brand reputation. Instead, you need to continuously align your core strengths with marketplace changes – and anticipate what your customers will want next. When new discount competitors like Germany’s Lidl supermarkets come to town, for example, don’t just assume you’ll need to slash prices to compete. Grocery shoppers’ price perceptions have changed, and there’s a new normal. They’re looking for value, not just “cheap,” and seeking out unique products rather than commodities.

The most impactful trend we see is the growth in small and medium size baskets outside the United States. Almost one-third of global baskets have three or fewer products, and many of these shopping missions take place in larger format superstores rather than convenience stores. More than 40% of hypermarket trips are for seven or fewer items, with as much as 50% of hypermarket shopping across the globe for top-up trips to get just one more item, or for tonight’s dinner. So the competitive issues of serving this segment correctly are significant. In fact, capturing the needs of convenience shoppers, no matter what store formats they choose, may be more valuable for grocery retailers than focusing energy pre-

Convenience baskets continue to grow across regions

year-over-year % change in small and medium basket visits

To compete in the escalating grocery price wars, retail grocers have to price smarter. That’s where customer data science provides the edge, enabling you to figure out where you can reduce prices most effectively without losing margin. You can understand optimal assortment, what to keep and what to get rid of without alienating core customers. And you don’t have to start from scratch with every new disruption. You can use data from similar situations in other markets to predict and get ahead of emerging trends. Consider how European food retailers responded when discounter Aldi expanded from its German base throughout the Continent. Our data show that traditional grocery retailers see the majority of sales impact from a discount competitor because of customers visiting their stores less frequently (69%) and putting fewer items in the basket. Retailers can fight back against these behaviors with strategies based on solid customer data: testing and promoting new items and concepts with the right shoppers, triggering personalized defensive communications at

Basket visits Units

11%

12%

Asia

2% Europe

Latin America

0% 2%

North America

Source: dunnhumby, October 2016

dominantly on real estate and format. Convenience is not a store size or a location anymore but a fundamental consumer behavior. And that behavior is format-agnostic. Supermarkets that succeed with convenience are deploying strategies that accentuate their strengths, such as focusing on store standards and service, improving private label quality, and optimizing their personalized marketing and promotions to core shoppers. Also migrating from strong footholds in Europe and Asia to the U.S. food retail market are technology-driven trends such as “click and collect,” analytics robots that can move through the store aisles to gather data, innovative mobile payment options and more. A more sophisticated click and collect program will even open up new opportunities for grocery retailers who can adeptly straddle the online and in-store experience. And customer data science can guide personalized online assortments and product substitutions – no small matter when average online baskets are four to five times bigger than in-store baskets. One U.S. grocery chain, California-based Raley’s, has already launched a shelf guide program that helps the retailer deliver on its mission to “infuse life with health and happiness, by changing the way the world eats one plate at a time.” The new labels immediately provide customers with a simple way to select the nutritious products they need throughout the store. Through customer data science, the insights that the program collects can enhance what Raley’s already knows about their customers and provide more relevant shopping experiences to make healthy food choices even easier. Perhaps the ultimate test of personalization, however, is a customer loyalty program. Let’s see how customer data science pushes loyalty programs to deliver more value to both grocery retailers and shoppers.

3. Leverage loyalty programs more effectively Successful loyalty programs need to be much more than discount vehicles. Loyalty is a one-on-one relationship, a conversation between retailer and customer rather than strictly a numbers game. The most sophisticated loyalty programs use customer data science to seamlessly blend innovative loyalty mechanics into an entire loyalty philosophy. It’s all about exploring the customer’s purchase behavior in-depth, then using that knowledge to streamline shopping and buying experiences and personalize rewards. “Will a mobile check-in for loyal customers help them achieve better discounts or experiences?” “Should we offer points toward an iPad purchase when they order online?” California-based grocery retailer Raley’s keeps its Something Extra™ loyalty program simple: 1 point for $1. The platform provides a direct channel for Raley’s to communicate with customers one-on-one to reward them and boost their interactions, such as offering a vineyard tour as a reward for a customer who enjoys suggestions for wine pairings and entertaining. Meijer, a Michigan-based chain of more than 230 supercenters and grocery stores throughout the Midwest, was an early adopter of digital engagement when it launched its industry-leading mPerks digital coupons in 2010. Today the loyalty program has evolved into a multifaceted experience that includes personalized offers, automatic rewards when shoppers scan their phones at checkout, a digital receipt and savings tracker, and digital tools to help more than 4 million users plan entire shopping trips in advance. Grocery retailers that lead in loyalty programs have mastered the art of agility with new technology and data

science. They’re not afraid to boldly go where no grocer has gone before. Those qualities are also essential for our final competitive advantage: creating more effective promotions.

Data from past promotions can offer important insights into what your customers respond to and why for different product lines. Sometimes those insights can even be U.S. retail promotions that counter-intuitive, such as a smaller discount outperforming a more are ineffective Make your promotions generous one. The trick is taking a Source: Nielsen Global Trade Promotion Landscape, 2015 work harder tactical approach to get the most for With 71 percent of U.S. retail promotions considered inyour promotion dollars. effective, according to Nielsen data analysis, it’s long past We’re also seeing rapid development in more sophisticated time to up your game. There’s just too much money at methods for measuring promotions success, leading to stake to settle for grocery promotions that don’t resonate more opportunities to develop customized grocery promowith your customer base. tions based on individual shopper preferences and habits. Promotions analytics is complicated but essential to creBy understanding the cadence and frequency of your best ating programs that deliver on time and money invested, customers’ shopping patterns, you’ll ensure your promodriving the correct messaging at the right time and place. tions are tailored to work in sync with each shopper. And because your customers don’t see themselves as “offline” or “in-store” or “online,” your promotions also need to feel seamless across all channels and screens.

Get the edge

It can be daunting to contemplate the personalized experiences that today’s grocery shoppers insist on whether they’re in-store or online. But the same mobile technology that gives shoppers real-time access to their heart’s desires can also give you instant access to data on why your customers do what they do. In an increasingly disrupted grocery marketplace, that’s information you can’t afford to ignore. Customer data science is the key to maximizing this wide array of shopper information sources now available to every grocery retailer. It will help you keep your most profitable customers and build market share no matter what your competitors – new and old – are throwing at you. And it ensures that as the retail grocery marketplace evolves, you will too.

About dunnhumby dunnhumby is a leading customer data science company. We analyze data and apply insights from nearly 1 billion shoppers across the globe to create personalized customer experiences in digital, mobile, and retail environments. Our strategic process, proprietary insights, and multichannel media capabilities build loyalty with customers to drive competitive advantage and sustained growth for clients. dunnhumby employs nearly 2,000 experts in offices throughout Europe, Asia, Africa and the Americas and works with a prestigious group of companies including Whole Foods Market, Tesco, Monoprix, Raley’s, Meijer, Michael Kors, Coca-Cola, Procter & Gamble, and PepsiCo. Learn more at www.dunnhumby.com.

process into his microphone. As he stretches and sways the long pieces of curd, this traditional way of making cheese is showing on flat-screen TVs all over the store and adds to the theater element that is Eataly.

NO CLICK AND COLLECT As the U.S. food retail industry undergoes dramatic change with sales expected to migrate online at an accelerating pace, retailers intent on hanging on to store traffic are rethinking the idea of what makes for a compelling grocery store experience. Eataly has done that, and then some, by redefining the entire concept of a food retail store in a way that simply doesn’t exist in the U.S., with all due respect to operators such as Wegmans, Whole Foods and H-E-B’s Central Market. A few retailers have played around with fancy lighting and unique food presentation. Some grocers have taken the items on their deli menus and paired them with beer taps and high top tables. Other stores have opened restaurants and brought in chefs. But many times the concepts often times have fallen flat, because they lack authenticity. Food shoppers are more savvy and have more options than ever before and they want quality at a fair price. They also want the ability to buy online and pick up at stores as is evident by the rapid expansion of click and collect service from the likes of Walmart and Kroger. Eataly is all about experience and very effective at conveying to the shopper that it cares about the products it sells, that it cares about quality. The store reeks of authenticity, from the quality of the pizza dough to the smells from the seafood counter to the personalized service: Eataly has really created a perfect mix of globalization (global sourcing of products) and localization (a personalized shopping experience),

Eataly Milan offers several options for the urban shopper, from smaller wheeled baskets to large carts. If a customer overdoes it on the shopping, a service desk will arrange to ship most items all over the world at affordable rates.

which really speaks to where retail is going. The idea behind Eataly is very simple: gather quality foods under one roof, where you can eat, shop, be entertained and inspired all at the same time. While Eataly is all about experience, the retailer doesn’t have its head totally in the sand when it come to digital matters. Large signs on multiple escalators throughout the store alert shoppers to the Eataly web site and the retailer’s digital capabilities. Shoppers could avoid coming to the store and have products delivered the same day, but why would anyone want to do that given the two-thumbs up sensory experience Eataly offers. RL

THE ULTIMATE FOOD DESTINATION Eataly isn’t done reinventing food retail. The retailer is opening the world’s first theme park dedicated to agriculture and food production in November in Bologna, Italy. The park is set to include restaurants, rides, farming factories, more than 100,000 square feet of food retail space and classes. From field to fork, FICO Eataly World (FICO stands for Fabbrica Italiana Contadina, or Italian Farming Factory) will invite visitors to learn about — and experience — the behind-the-scenes creation of food and drink. Entrance to the park will be free. The company says it wants visitors to think about everything they eat, which affects suppliers, retailers, the environment and beyond. Covering 20 acres, Eataly World is opening in partnership with more than 2,000 suppliers. The park will house four acres of pastures, fields and farms dedicated to growing essential crops and raising indigenous animal breeds. More than 40 workshops at the park will create Italy’s most iconic artisanal products (fresh and dry pasta, fresh mozzarella, aged cheeses, cured meats, gelato, candies, cakes, olive oil, craft beer and more). The park will also feature 2.5 acres of markets selling Italian food, drink and more. Visitors will be able to hop from pavilion to pavilion on a shopping tricycle. Dining options will span more than 25 themed restaurants, plus taverns and street food carts. Above all, Eataly says Eataly World will be a place of learning, with 10 classrooms, 2 miles of educational paths, and six multimedia areas that all educate consumers about agribusiness.

NOVEMBER/DECEMBER 2017 Retail Leader.com

> GROWTH AND BUSINESS DEVELOPMENT

THE DATA

DIFFERENCE Market Track enjoys a broad view of the increasingly dynamic retail and consumer products universe. The Chicago-based provider of business intelligence solutions, once known primarily for monitoring retailers’ print advertising, has spent the past decade building a portfolio of capabilities spanning advertising, e-commerce, brand protection, pricing and promotional activity through a range of homegrown enhancements and 10 acquisitions. Retail Leader spoke with Market Track CEO Dennis Moore and Jared Schrieber, co-founder and CEO of recently acquired InfoScout, about what’s next for retail, the pace of change and data-driven value creation. > By Mike Troy Retail Leader: Market Track works with so many different retail and consumer good companies. That must give you a broad view on the overall market. What’s your take on the state of the industry today?

Dennis Moore: It depends on where you sit. If you are a traditional consumer goods manufacturer or retailer it is pretty tough. It is tough for big brands and for people who are selling predominantly in physical stores. For manufacturers who are more local in their production, or retailers who have a good balance between physical and online, they are enjoying a lot of success. We have 2,100 clients so we see a wide range of experiences. Sometimes you hear a lot about how traditional center store grocery brands or traditional grocery retailers are having a tough time, but there is a flip side to that story, and there are other retail formats and manufacturing formats that are actually doing pretty well. RL: What behaviors are you seeing from companies, be they retailers or consumer goods companies, large or small, who have best positioned themselves for growth in 2018? DM: Two things come to mind. One relates

to understanding the bifurcated American consumer. You see a lot of retailers and brands doing well by focusing on one end or the other of income distribution. The other way to perform well

Dennis Moore, CEO of Market Track

Retail Leader.com NOVEMBER/DECEMBER 2017

in this environment is to find the right use for digital. Digital affords a lot of targeting opportunities and there are companies finding a way to make it work for them. RL: What is the right way? DM: If you really understand your audience, digital is a great way to reach them. Once you have a focus you can use digital to your advantage to increase targeting. People who are exhibiting some degree of skepticism about digital are performing better. A few years ago there was an over exuberance with digital, and people started spending a lot of money and lost sight of how much more the industry was charging for a targeted impression versus a general market impression and there was distortion in pricing. Major advertisers pushed back on the Googles, YouTubes and Facebooks of the world to understand more about where their ads were appearing, who was seeing them and making sure it was the right people. The people who are doing it best bring some skepticism and ask for more insight into what is going on in the digital landscape. RL: What are some of the other top challenges your clients are expecting you to help them solve today? DM: I’ll come back to digital and include omnichannel. One focus of our business is tracking advertising activity and 10 years ago it was mainly about television, magazine and radio ads. Every one of our clients now is asking us to track digital advertising. We do, but it is harder in a programmatic world when ads are very targeted to collect and maintain a representative library of all the ads that are out there. That is what clients are asking us to help them understand, who is doing what in the digital space. The other thing that we hear repeatedly is people want to understand how volumes move between physical and

digital. Everyone knows that online sales are growing, but in what categories, to what extent, and among which consumers? RL: Is that why you bought InfoScout? DM: It is one of the things that made InfoScout appealing. Its

panel contains purchase information from an individual’s instore and online activity. Market Track is a company that as recently as five years ago was a promotions tracking company, but we recognized that the way people were using our promotion tracking information, which is largely to benchmark and verify, could be applied to other pockets of sales and marketing activity where there is a similar need. RL: For example? DM: As there is more and more promotional and online pricing activity, many of the 10 acquisitions we have done involved companies that track advertising and provide pricing intelligence. Because of all the targeting implicit in digital and all the complexities of the changing retail landscape and the shift of volume online, the market intelligence needs of clients have changed. They need information on different things in different ways than they did before. Many traditional sources are not as well suited for the digital and e-commerce world. The most obvious place that we felt there was an unmet need was with consumer panels. To really be on top of what people are buying today you need to see what they are buying in stores and what they are buying online, and if you are in the food industry, you need to see what they are buying in restaurants. You have to re-imagine what a consumer panel is for this new environment and InfoScout has done that.

different experiences for different kinds of people because everyone has different interests and motivations and we try to appeal to those. RL: How do you ensure people use the apps consistently so the panel has integrity? JS: We rely on game mechanics to create systems of rewards and leveling up to drive positive, reinforcing engagement. It doesn’t hurt that we pay people, but the real key is gamification. RL: What made Market Track appealing as an acquirer? JS: Market Track looked at us from the perspective of what could you do with a consumer panel in the 21st century. They asked how does panel data link up with all the market intelligence needs that clients have in terms of the type of ad campaigns that are running, how they are performing, in store promotions and pricing, all the different ways that brands connect with consumers and the role that a panel could play in that. We felt that was a unique perspective that would allow us to get the most out of InfoScout for years to come. RL: Dennis, post the InfoScout acquisition, where are you at now it terms of capabilities and holes you need to fill? Are you looking to acquire more companies?

RL: How so?

DM: The thing we are most focused on now is integrating and growing with InfoScout because it is one of the largest acquisitions we have done. That said, our private equity owners bought Market Track to make it a bigger company. There is nothing imminent, but I expect we will do something of interest in 2018.

Jared Schrieber: By capturing data from consumers via their receipts. It is a more passive way to gather information and get a greater volume of data about what people are buying in stores and online. InfoScout brings a source of sales data to Market Track that is uniquely qualified to serve the market needs of today.

RL: Let’s come full circle with your thoughts on retailers’ future use of circular ads that used to be the core of Market Track’s business. Will we still have print circulars in the future?

RL: How does the panel work?

DM: Absolutely. Circulars exist to drive traffic in stores and they remain a great vehicle to push offers to consumers whether they are at home or stores. You might see the number of pages diminish, but they are never going away. RL

JS: The panel was built five years ago when smartphone adoption was accelerating in the U.S. We made a bet that engaging people through fun, rewarding smartphone apps would simplify what it means to be a consumer panelist and make it fit into how they live their everyday lives. We created a simple, engaging experience where people could earn rewards for taking pictures of their receipts and it allowed us to build a much larger, representative purchase panel than had existed before. We have a portfolio of apps that create

Jared Schrieber, CEO of InfoScout

NOVEMBER/DECEMBER 2017 Retail Leader.com

> TECHNOLOGY AND INNOVATION

A new breed of CIO HEIGHTENED EXPECTATIONS OF CHIEF INFORMATION OFFICERS MEAN SOME CIO’S MIGHT NOT BE RE-HIRED IF THEY APPLIED FOR THEIR CURRENT POSITION TODAY. > By Mike Troy

It is impossible to overstate how much digital advances have impacted the retail and consumer good world. In turn, the impact on the C-suite is equally pronounced as all corporate officers need to have a deeper understanding of technology and the ability to envision potential applications to drive future growth. Senior executives may not need to code or know how to integrate complex systems, but the retailer whose senior executives are the most technologically astute is going to have a serious competitive advantage in the coming decade. With increased technology aptitude now a requisite for senior executives, the bar has also been raised for CIOs who must possess skill sets very different from, but in addition to, what the role traditionally required. The big shift for CIOs involves a transition to the role as a revenue creator and exploiter of data as opposed to a role focused on project delivery, expense control and engineering processes. That is according to a landmark study conducted by Gartner in which the research and consulting firm surveyed 3,160 CIOs from 98 countries across all industry sectors. Although only 5% of respondents were from the

retail industry the findings are applicable across industries. “The CIO’s role must grow and develop as digital business spreads, and disruptive technologies, including intelligent machines and advanced analytics, reach the masses,” said Andy Rowsell-Jones, Vice President and Distinguished Analyst at Gartner. “While delivery is still a part of the job, much greater emphasis is being placed on attaining a far broader set of business objectives.” Rowsell-Jones presented the research at Gartner’s annual Symposium/ITxpo in Orlando where roughly 7,500 attendees gathered for what the firm bills as the world’s most important gathering of CIOs and senior IT executives. In recognition of the changing technology world and increased expectations, the question he put to those in attendance was whether their company would hire them today for their same position. It is a fair question and caused a degree of introspection among tech executives coping with onrushing digital challenges and heightened expectations regarding data-enabled value creation and unrelenting threats. The expectations of CIOs and senior IT executives are being driven by 10 critical trends (see page 18) identified by David Cearley, a Gartner Vice President and Fellow. Cearley analyzes emerging and strategic business and technology trends and how they shape the way value is derived from technology. He groups the 10 into three broad areas. “The first element is intelligence. We are looking at trends that really are driving intelligence down into systems for more insightful, aware and autonomic types of systems. We are looking at the notion of digital. More autonomous and immersive environments that merge the real world and the virtual world together into this new digital reality,” Cearley said. “The third theme is the mesh. (The mesh is) a dynamic and secure set of connections. Connections between technology and services. Connecting to lots of data. Gartner Vice President and Fellow David Cearley shared his view of the top 10 strategic technology Connecting people and businesses.” trends for 2018 at the firm’s annual Symposium/ITxpo. 14

Retail Leader.com NOVEMBER/DECEMBER 2017

Because of these changes, the CIOs Gartner surveyed were nearly unanimous (95%) in their view that their jobs will changed or be remixed due to digitalization. While world-class IT delivery management of IT projects is a given, it is expected to take up less of the CIO’s time. Survey respondents expect that the two biggest transformations in the CIO role will involve becoming change leaders, followed by assuming increased and broader responsibilities and capabilities. Inevitably, Gartner concludes from the survey results, the job of CIO will extend beyond the traditional delivery role to other areas of the business, such as innovation management and talent development. The survey also showed that a majority of CIOs say that technology trends, specifically cybersecurity and artificial intelligence will significantly change how they do their jobs in the near future. Cybersecurity continues to threaten the global landscape in 2018, and 95% of CIOs surveyed said they expect cybersecurity threats to increase and impact their organization. “In response to these concerns, the survey found that digital security ranks high on the CIO agenda as 35% percent of respondents said they have already invested and deployed some aspect of digital security, and 36% are in the process of planning to implement some form of digital security,” said Rowsell-Jones. “CIOs are also increasingly adopting AI in their organizations. Predominantly, AI is being used initially, either to boost the customer experience or to fight fraud.” CIOs surveyed rank AI, followed by digital security and the Internet of Things (IoT), as the most problematic technologies to implement. The big reason why is that these technologies, particularly AI, demand new skills which are in short supply, which speaks to CIO’s view that an increasing amount of their time is spent on talent development. Another key finding was that CIO’s listed as their top 2018 priority driving revenue with digitized products and services. This finding is particularly telling about how much the world of technology has changed the CIO’s role from implementation to value creator. “CIOs are on the road from digital experimentation to digital scaling. However, a wall exists between those early digital experiments and pilots, and those that have achieved digital scale,” said Rowsell-Jones. “Perhaps the biggest brick in that wall is organizational culture. CIOs need to identify the cultural behaviors that currently exist and what the future state vision is. In doing so, they must recognize existing cultural

strengths and position cultural change as ‘the “CIOs are also next chapter,’ rather than a massive overhaul, to increasingly respect employees’ contributions and invite them to come along on the journey.” adopting The Gartner survey and research on digital AI in their changes highlight that the evolution of the CIO role is also evident in expectations around inorganizations. novation and transformation. When asked about their success criteria, top CIOs report they are Predominantly, already close to the ideal split where more focus AI is being of their performance metrics is on business outcomes rather than IT delivery. The survey used initially, found that CIOs are spending more time on the business executive elements of their jobs comeither to boost pared with three years ago. In fact, CIOs from top the customer performing organizations are spending up to four days more on executive leadership. The more maexperience or to ture an enterprise’s digital business is, the more likely the CIO will report to the CEO. fight fraud.” In a change from previous surveys, respon—David Cearley, dents were asked to name the top differentiating a Gartner Vice President technologies compared to prior years when they and Fellow were asked about investment levels. Business intelligence and analytics still retain the top spot on the list, with top performers most likely to consider them strategic. “This new focus represents an opportunity for the CIO to become more deeply involved in this differentiating technology,” said Rowsell-Jones. “Data and insight drive the creation, delivery and life cycle of digital products and services. Flow of information in the context of user interactions leads to better engagement and value creation for all parties. Analytics connect the CIO and the IT organization to far-flung parts of the organization where they can cultivate new relationships.” While the role of CIO varies across industries, by company size and country, the commonality is that the “I” in CIO still stands for information but top tech executives know it is their Signing throughout Gartner’s annual Symposium/ companies’ most valuable ITxpo reminded the roughly 7,500 attendees who asset and they are expect to descended on Orlando in early October of their stature extract value from it. RL in the technology world. NOVEMBER/DECEMBER 2017 Retail Leader.com

SPONSORED CONTENT

I. TOMEI EXECUTIVE INSIGHTS ROBERT PRESIDENT OF CONSUMER AND SHOPPER MARKETING

A glimpse at the minds and personalities of IRI’s thought leaders. Shopping online has been the norm for years, but it is a more recent opportunity and focus for many companies in the consumer packaged goods industry. In fact, e-commerce is exploding and will account for 10 percent of all CPG sales by 2022. However, e-commerce is not just a new and emerging sales channel; it is also a powerful marketing tool. Already, more than 75 percent of all shopping trips begin online, regardless of whether the purchase transaction occurs in a brickand-mortar store or online. A strong online presence will support both online and in-store growth efforts.

IRI’s President of Consumer and Shopper Marketing Robert I. Tomei shares how IRI is helping CPGs grow e-commerce sales by first fully understanding the omnichannel shopper, identifying and activating against key shopper segments along the new pathto-purchase and navigating the digital landscape.

Q. How is IRI helping CPG companies build a strong online presence? A. For CPGs to reap the benefits of the digital landscape, e-commerce must be a key digital pillar. Our Build-Drive-Earn strategy has a foundation in building a presence on e-tailer sites as good as owned-brand web pages, using media executions to drive shoppers to your brand presence, and earning online through integrating marketing and media executions online and in-store. This framework to win will help position traditional brick-and-mortar manufacturers and retailers to excel in the online CPG marketplace and capture this huge opportunity. Q. What is the best way for CPGs to engage with shoppers online and drive sales? A. At the core of the Build-Drive-Earn framework is the presence of best-in class, searchoptimized content displayed on an e-tailer’s product detail pages. With almost no limit on space and consumers now used to getting flooded with options and messaging, shoppers’ attention spans are quite narrow. It is critical to have detail pages that convey searchoptimized and appropriate content to help drive shoppers’ journeys and purchasing decisions. Strategically building appropriate titles, bullets and product descriptions is key. Also, enhanced marketing content allows manufacturers to uniquely showcase products with extra features, and images and reviews give products dimension, and give shoppers confidence in a purchase. Q. Since navigating the digital landscape is still fairly new for shoppers, how can CPGs develop online content that will not only engage shoppers but spur actual purchases? A. The omnichannel marketplace has created a space for brands big and small, established and new, to compete in what seems to be an environment with unlimited product choice. Innovation is a key to engagement, and is driven by new rules. Innovative products and the marketing content supporting them must show an understanding of the modern market landscape, have a focus on benefit and value-driver positioning, present cohesive content and synced search, and build loyalty through annuity. Today’s shoppers want their needs met, and approaching e-commerce with these strategies in mind will keep the shoppers’ needs in the bullseye, rather than the traditional focus on product attributes. Q. How are Millennials and Gen Z influencing the online space? A. Both Millennials and Gen Z are emerging generational cohorts making a big impact in the digital space. However, they have very different interactions with brands and retailers given their use and adoption of digital platforms. Millennials – with huge spending power – are techsavvy and very social. They consider price intensely and show minimal brand loyalty. What matters to them is the social implication of their purchase, both in the origin and story of their products and how that product reflects on their own self-image. Gen Z has similar tech-focused behaviors, but has shown us that there certainly is still a place for brick-and-mortar retail, as a complement to their commitment to online retailers. They want a large product selection, low pricing and an enjoyable shopping experience. Ease of shopping has substantial influence, and it will influence retailer choice. Similarly, price is a big influencer, but isn’t everything! They want to easily find what they’re looking for in-store. And, not surprisingly, social media plays a big role in influencing Gen Z purchase decisions – a bigger role than pricing or discounts, in fact. They are the only generation to be more driven by social media than price.

> TECHNOLOGY AND INNOVATION

TOP 10 Strategic Technology Trends for 2018 Source: Gartner

1. Artificial Intelligence Foundation: Today’s AI is narrowly focused and the best use cases are those that consist of focused machine learning solutions put against specific tasks. The recommended approach is to evaluate scenarios in which AI could drive specific business value and consider experimenting with one or two of those with the highest impact. 2. Intelligent Apps and Analytics: Augmented analytics enable users to spend more time acting on insights. The coming years will see virtually every app, application and service incorporate some level of AI. Some will be obvious intelligent apps that couldn’t exist without AI and machine learning while others will be unobtrusive users of AI that provide intelligence behind the scenes. Intelligent apps can create a new intelligent intermediary layer between people and systems. 3. Intelligent Things: Swarms of intelligent things will work together. Intelligent things are physical things that go beyond the execution of rigid programming models and exploit AI to deliver advanced behaviors that interact more naturally with their surroundings and with people. AI is driving advances for such things as autonomous vehicles, robots and drones, and delivering enhanced capability to many existing things, such as IoT-connected consumer and industrial systems. 4. Digital Twins: Digital twins will be linked to other digital entities. A digital twin is a digital representation of a real-world entity or system. The implementation of a digital twin is an encapsulated software object or model that mirrors a unique physical object. Data from multiple digital twins can be aggregated for a view across a number of real-world entities. By 2020, Gartner estimates there will be more than 20 billion connected sensors and endpoints and digital twins will exist for potentially billions of things. 5. Cloud to the Edge: Edge computing brings distributed computing into the cloud style by drawing from the concepts of mesh networking and distributed processing. Edge computing describes a computing topology in which information processing and content collection and delivery are placed closer to the sources and sinks of information. Edge computing keeps the traffic and processing local, with the goal being to reduce traffic and latency. 6. Conversational Platforms: Integration with third-party services will further increase usefulness. Conversational platforms will drive the next big paradigm shift in how humans interact with the digital world. There will be a shift in models from technology-literate people to people-literate technology and 18

Retail Leader.com NOVEMBER/DECEMBER 2017

the burden of translating intent will move from the user to the computer. The system takes a question or command from the user in natural language. It responds by executing a function, presenting content or asking for additional input. 7. Immersive Experiences: VR, AR and MR can help increase productivity. VR and AR are separate but related technologies while mixed reality (MR) extends both approaches to incorporate the physical world in a more robust way. The visual aspect of the experience is important, but so are other sensory models, such as touch and sound. This is particularly so with MR in which the user may interact with digital and real-world objects while maintaining a presence in the physical world. Interest and excitement are high, resulting in multiple, novelty VR applications. According to Gartner, many provide no real business value, other than in advanced entertainment, such as video games and 360-degree spherical videos. For businesses, this means that the market is chaotic. 8. Blockchain: Blockchain offers significant potential long-term benefits despite its challenges. Blockchain is evolving from a digital currency infrastructure into a platform for digital transformation. Blockchain technologies offer a radical departure from the current centralized transaction and record-keeping mechanisms and can serve as a foundation of disruptive digital business for both established enterprises and startups. Gartner contends blockchain will transform the exchange of value, much as http/html transformed the exchange of web-based information. 9. Event-Driven Model: Events will become more important in the intelligent digital mesh. Businesses are always sensing, and ready to exploit, new digital business moments. Business events, such as the completion of a purchase order, call for specific business actions. The most significant business moments have implications for multiple parties and they can be detected more quickly and analyzed in greater detail by using event brokers, the IoT, cloud computing. 10. Continuous Adaptive Risk and Trust: Barriers must come down between security and applications teams, according to Gartner. The intelligent digital mesh and related digital technology platforms and application architectures create an ever-more-complex world for security. Meanwhile, the continuing evolution of the “hacker industry” and its use of increasingly sophisticated tools — including the same advanced technologies available to enterprises — significantly raise the threat potential. A shift to a continuous adaptive risk and trust assessment (CARTA) strategic approach is required. CARTA will enable real-time, risk- and trust-based decision making with adaptive responses.

INNOVATION THAT DRIVES GROWTH IN THE OMNICHANNEL ENVIRONMENT Successful New Product Strategies to Break Through Unlimited Consumer Choice The Market Has Fundamentally Changed.

With limitless access to a wide range of nearly everything and every product, shoppers today experience a completely new – and always evolving – retail landscape both in-store and online. Manufacturers and retailers also experience the retail landscape differently, so it is imperative they approach their strategic goals for innovation with a new perspective. Digital and mobile platforms have created a new shopper journey, offering many additional ways to engage and influence consumers. Unlike a predefined aisle of a brickand-mortar retail outlet, the online world transforms a shopper’s decision set. With this new decision set, shoppers are just a click away from endless solutions. The vast range of solutions available online today has fundamentally changed the CPG new product innovation and activation game. And it has opened up the roster to nearly all players. Traditional brick-and-mortar brand leaders don’t

control the pace of innovation or the trends. E-commerce is any player’s game to win – big and small players, national brands and store brands all have a vested interest and a fair shot at winning with new products. When it comes to successful innovation, e-commerce has changed the dynamics, so all players have new rules to consider. The digital shelf may appear to be limiting on the surface because of consumers’ limited attention spans and navigation requirements, but successful marketers know they can leverage e-commerce as a differentiator by meeting consumer needs, connecting with them online and optimizing search to win purchases. The omnichannel marketplace is forcing new products to compete in what seems to many to be an environment of unlimited product choice by addressing key consumer needs with clear product positioning that is consistently communicated. Comprehensive content marketing and search terms are mission critical, and aligned strategy for new product development and marketing is imperative.

Traditional brand leaders can quickly become unseated in the e-commerce realm. 43% MULO In-Store Share Online Share 28% 25%

24%

16% 13%

18%

16%

13%

11%

10%

7% 1%

3% Category Leader

Challenger Brand

Dish Detergent

Category Leader

Challenger Brand

Dried Meat Snacks

Category Leader

Challenger Brand

Internal Analgesics

4% Category Leader

Challenger Brand

Coffee

1% Category Leader

Challenger Brand

Soap

1% Category Leader

Challenger Brand

Snack/Granola Bar

Source: IRI MULO POS and IRI E-Market InsightsTM, 52 weeks ending June 25, 2017

Rules for Success

While in-store, shoppers can look, feel and engage with brands and products, very easily comparing competitive sets and making choices based on ingredients, claims, packaging or even promotion. This hands-on experience can instill consumer confidence and lead to purchase, but offerings are limited by the physical square footage of the store and the assortment particular to that retail outlet. The online world is very different. While shoppers cannot have the same tactile experience, the unlimited shelf opens endless possibilities to meet consumer needs. It is key, though, to harness consumers’ limited attention spans.

“Our formula for success will continue to allow us to build our portfolio of brands that consumers love, accelerate innovation, complete revolutionary acquisitions and build our balanced model across all of our businesses.” — HORMEL PRESIDENT AND CEO JIM SNEE

E-COMMERCE OPPORTUNITIES

A sharpened focus on innovation must be at the center of online strategy to win at e-commerce – it is a critical component of growth plans. CPGs need to focus on innovation that will engage and activate, from the concept stage to online execution, where unlimited choice means concerted efforts to drive relevant and clear product exposure. CPG and retailer leaders in this space have shown that innovation that breaks through unlimited choice in the omnichannel environment follows new rules for success.

Understand the Modern Market Landscape Focus on Benefit and Value-Driver Positioning Ensure Cohesive Content and Synced Search Build Loyalty Through Annuity By adhering to these rules and activating upon the tenets that spurred them, manufacturers and retailers can collaborate to broaden their innovation lens and win with new products across channels. Innovation in the omnichannel world needs to take into account the broader lens through which shoppers view CPG – the new market landscape solves needs and redirects thinking from a category-focused approach to product solutions. People expect the digital world to respond to their personal needs, and e-commerce is no exception. Personalization is an expectation today, and while it can pose challenges, CPGs need to make an emotional connection with the needs and wants of individuals. Winning in the marketplace today demands personalized efforts, as nearly everything from coffee drinks to technology is unique to each consumer. The four rules of success require manufacturers and retailers to start with shoppers’ needs instead of product features to build compelling products – indeed, solutions! – that will make an impact in the e-commerce marketplace and take hold across the omnichannel landscape.

Understand the Modern Market Landscape

For CPGs, there is both promise and peril with the evolution of the modern market landscape because new product opportunities are so varied across categories and with each unique consumer. Unlimited choice has redefined competitive sets and accelerated the shift from formto benefit-based landscapes – making new product positioning even more critical for driving relevance and purchase conversion. Historically, occasion- or ingredient-based products would get rolled into the market to fill a more general need and purpose. Today, the expectation is that products inherently fill a need and a purpose but go one step further by taking the functionality to more depth and making a personal connection – empowerment, emotional satisfaction, for example. An understanding that shoppers are shifting their focus from basic needs to transformative and emotional value drivers is critical.

MARKE T E VOLUTION

Occasion Based

Ingredient Based

Package Based

Brand Based

Benefit Based

Single-purpose solutions are a simplified model, while today’s shoppers want complete brand offerings to meet all of their complex and daily needs. For products to deliver innovation that breaks through, CPGs have to view the entirety of the emerging benefits-driven marketplace. IRI’s Hendry Market Structure pinpoints opportunities for growth and innovation across a wide range of market categories, while also improving forecast accuracy and giving marketers actionable information. This framework for innovation will ensure a complete understanding of the modern market landscape and illuminate how innovative new products can break through.

“The [Hendry] forecast validated our hypothesis that premium segment A could be a $50-millionplus business. It helped senior leaders understand what a premium business could look like.” — GLOBAL FOOD, SNACK AND BEVERAGE MANUFACTURER

Laddering up to larger needs means that manufacturers and retailers can deliver more and create stronger, broader shopper connections across categories. Further, the Hendry framework identifies competitive products and the products that newly define a market as prescribed by shoppers’ needs. The framework allows CPGs to see the market as shoppers define it, identifying true competitive sets based on actual consumer behavior and the associated product benefits. This framework confirms where a CPG product portfolio currently competes and reveals adjacencies and attractive white-space areas for innovation. Challenging, however, for e-commerce players seeking to connect with shoppers is that the modern marketplace provides a home for limitless choice, yet that does not necessarily mean shoppers know about those choices. Innovating and putting new products in the

Shift From... Form

Empower

Liners

Confidence

Absorbency

–Light to Ultra Absorbent

Pad Form

Freedom

–Thin to Overnight

Trust

Undergarments

Normalcy

Successful new products assess the changing landscape to identify the larger market opportunity. Always took a product portfolio delivering mainly on form and tapped consumers’ emotional connections to a highly personal product. The brand empowered users and put messaging behind its products, building a brand image and high loyalty. Always leveraged the new benefits-driven landscape to identify an opportunity around function and design, enabling women more freedom from bladder leaks. This line is now a $166 million business, experiencing 185 percent growth during the past three years! E-COMMERCE OPPORTUNITIES

digital world entails building shopper exposure – new products can’t succeed if shoppers don’t know they are there!

With Always Discreet, bladder leaks can feel like no big deal! The EXPERIENCE – empowerment, freedom to move The NEW-AGE CONVENIENCE – technology has generated a thin liner with highabsorption capabilities

IRI’s ongoing New Product Pacesetters research underscores the difficulty of breaking through in the crowded CPG landscape. Of the 12,000+ new brands that enter the marketplace in a given year, an estimated 90 percent fail to meet the expected goals. This is partly due to unrealistic expectations – manufacturers and retailers may find it hard to swallow, but new product success looks much different now than in decades past. Today a $25-million innovation across channels is notable, compared with $100-million aspirations once expected in order to earn the badge of success. Because consumers want more personal, targeted and unique CPG solutions that meet their own distinct needs, success has a new definition. Accurately quantifying the ideas that hold the most promise in the modern market landscape is essential.

Focus on Benefit and Value-Driver Positioning

In what was once a highly utilitarian culture, products that delivered on price, taste, nutrition or convenience satisfied shoppers. However, today’s culture is experiential and participatory as consumers’ drive for products very much includes emotional connections. Shoppers today seek products that will:

Create an experience Support health and wellness efforts Deliver a new-age convenience (for example, Amazon Prime, Blue Apron) Have a social impact Produce added transparency Enhance safety Breaking through the clutter requires building a product story that not only conveys these elements, but also underscores how the product fits into the consumer’s life. This shift in product positioning requires new strategic approaches to capture the attention of the shopper and spur purchase behavior.

By knowing the shopper and viewing the marketplace through his/ her eyes, CPGs will be well positioned to deliver the right product at the right time, and with the right message. Messaging is critical to making connections and educating consumers about the innovative, needs-based products available to them both in brick-and-mortar stores and in the e-commerce realm.

BEFORE: What products can we make? BRAND Product Features – started with brand

Anticipation & Excitement

Higher Order Benefits – start with consumer

Deliver What’s Promised, And More

Identify and narrow down customer needs

Identify specific needs based on customer persona/ personalization

Benefits

Product features developed based on personalization

Quality Value Deliver What’s Promised

E-COMMERCE OPPORTUNITIES

Uniqueness Convenience

Experience

Convenience

NOW: What benefits are people looking for?

Provide benefits with specific product features

BRAND

Right brand name based on specific benefits provided

Ensure Cohesive Content and Synced Search

Best-in-class content is a key to a product’s story and positioning. With almost no limit on space and consumers now used to getting flooded with options and messaging, shoppers’ attention spans waning, requiring new strategies to elevate awareness. From headlines through to detailed sites and reviews, search-optimized content helps navigate the new shopper journey and purchasing decisions. The best content drives shoppers to purchase because it responds to a need, fulfills a desire and truly delivers on the benefits they are searching for in a particular session. For this reason, it is essential to leverage high-value attributes and higher-level benefits that represent the modern market landscape when crafting key word strategies. A brand message with cohesive content and synced search highly increases the probability of a new product being found – and purchased. New product positioning must translate to a fully integrated brand message as part of a holistic content marketing strategy. Being just a click away from endless solutions means pre-shopping and influences are more important than ever – a lost sale is just a click away. Consistency all along the path to purchase is imperative.

BUILD: search-engine-friendly keywords will attract and advertise; strong content is key. DRIVE: drive traffic to your site; drive to e-tailers; convert consumers to shoppers to buyers. EARN: building a community around sites and innovative products attracts like-minded shoppers, builds a social network and earns loyalty and sales. Content marketing must use a strategic approach focused on creating and distributing valuable, relevant and consistent content to attract and retain a clearly defined audience.1 Further, key search terms have never been more important – to gain exposure, a new product needs impressive search results. Linking customer needs to search terms will drive trial, and often, optimizing this content is as simple as just one strategic word. By adding the top category keyword to product names online, results will grow exponentially and give a product larger share of (virtual) shelf. Content Marketing Institute

Small Changes

Larger share of shelf

Increased Increased consideration DOLLARS

Sponsored Ad and Best Seller on Amazon (search: “bladder leak protection”)

Search terms can elevate brand selection, creating a strong link between a new product and its benefits. Always’ use of “incontinence pads for women” as a search term propelled Always Discreet into the top five brands on Amazon, while the unique positioning around empowerment via a thinner liner drove relevance and sales.

#1 Non-Ad Listing Google (search: “bladder leak protection”)

E-COMMERCE OPPORTUNITIES

Build Loyalty Through Annuity

With a needs-focused product, great positioning and elevated search results, a new product is poised for success. But ensuring that the product or brand choice is ongoing is the next endeavor. From click-and-collect to stock-up strategies and automatic replenishment, there are many strategies to try.

Reduced Weekly Grocery Store Shopping Trips 2012: 2.2/week Today: 1.6/week* Big-Box Store Traffic Also Declining:

The omnichannel marketplace has indelibly changed shopper trip frequency and trip behavior, enabling new ways to lock in shopper loyalty. Subscription services can help shoppers enjoy a better shopping experience, thus creating loyalty through annuity. And new products can – and should – play a role. Successful new products shrink the path to purchase and make repurchase and pantry loading turnkey. In the online space, subscription services are at the heart of the loyalty strategy so far. To build loyalty through annuity, invest to understand the subscription marketplace – which products and which shoppers are ideal candidates – to turn one-off transactions into an ongoing relationship. Get them hooked and into a situation that requires fewer purchasing decisions, less often!

Online Offers Large Pack Size – locks in loyalty

-28% traffic *Source: FMI

Shop now on Website – connects to online retailers

Always leverages several strategies to lock in shopper loyalty: The brand website is highly personalized and enables ease of purchase for specific products through a direct link to available e-tailers. Large pack sizes are offered online, reflecting regimen opportunity and taking consumers out of the purchase cycle for a longer period of time. The brand participates in Amazon’s subscription service for ongoing purchase.

E-COMMERCE OPPORTUNITIES

Action Steps

Successful new product propositions are challenging – with even more risk across the omnichannel market and specifically e-commerce. But there is abundant opportunity and room for players of all sizes and endless categories to take root. Broken down, it’s simple: Start with the new product proposition that meets a compelling marketplace need, build a consistent and compelling presence at key touch points along the new digital path to purchase and support the plan. Certainly product innovation in the new world is anything but simple, but there are proven rules and strategies to bolster efforts for CPG manufacturers and retailers alike. Furthermore, it’s critical to note that e-commerce is the great equalizer. Smaller, niche companies and brands can compete very effectively and efficiently online. A number of case studies have illustrated that smaller brands, in fact, can be top sellers on Amazon, while not achieving nearly that success at brick-and-mortar outlets. The rules have evolved to reflect omnichannel strategies, often to the benefit of new product innovators without giant CPG or retail muscle behind them.

Shoppers thrive on convenience and will pay for it! The power of convenience is exemplified by the fact that only 1 percent of Amazon’s 63 million Prime shoppers check prices on other sites before making a purchase! Source: IRI Estimate

Sharpening focus on omnichannel strategies within the innovation process can enable greater new product success.

Explore

Identify

incremental white space opportunities

Predict

Activate Planning

Create

Optimize

breakthrough products and support plans

distribution, trial-driving activities and strategic media planning

Manage

Assess

performance and course correct quickly

OMNICHANNEL NEW PRODUCT PROCESS Cross-channel shopper-driven landscape

Prioritize new product ideas based on size of the prize and incrementality – Cross-channel and channel specific

Reach new product consumer target to drive meaningful sales: in-store distribution, e-commerce sites, digital

Track and assess a brand’s holistic online and offline performance

Getting established in a consumer’s consideration set is critical to driving awareness and loyalty in the world of the limitless shelf. A tenet of the new product strategy already, the cycle of awareness, trial, repeat has never been more critical given the ease with which purchasing decisions can change.

Consider This

To grow and win with innovation in an omnichannel marketplace, brands – both new and established – have to work hard. They have to break through the clutter to thrive. Critical questions can guide the way: How has your portfolio footprint changed in the context of the true competitive environment to inform new product strategy? How do you create relevant/meaningful positioning that will create awareness and trial in this unlimited-choice space? E-COMMERCE OPPORTUNITIES

How does your new product become part of the consideration set to drive repeat and loyalty? How do you mitigate risk and accelerate innovation in this dynamic environment?

Solutions and Insights from IRI

To serve the CPG and retailer community as it navigates e-commerce, IRI has built the industry’s leading e-commerce suite of solutions. Focused intensely on innovation, IRI’s Hendry Market Structure helps size white-space opportunities and forecast new product concepts by building broad-based, shopper-defined category definitions across the evolving omnichannel environment. The road map to successful innovation uses a proprietary switching model instead of basic regression analysis or judgment-based groupings. The foundation of this model is actual shopper behavior augmented with attitudinal and usage data or even data that is custom collected. IRI’s partner, MachineVantage at the University of California, Berkeley, suggests that 95 percent of decision making is done subconsciously. By relying on actual shopper behavior rather than claimed behavior, the Hendry model uncovers the unconscious trade-offs behind purchase decisions, producing more reliable and more specific results. This allows early innovation and doubles the likelihood of new product success. It also avoids expensive failure.

Consumer and Shopper Marketing Center of Excellence

Another resource, IRI’s Consumer and Shopper Marketing Center of Excellence leverages IRI’s vast shopper marketing data cloud to develop deeper shopper insights, segment planning, opportunity sizing and activation strategies that empower its customers to win the sale and the shopper. IRI solutions help marketers connect with consumers and shoppers one household and one store at a time, across as many touch points as possible, along the new path to purchase. IRI’s Product Innovation Practice specializes in helping CPG retailers and manufacturers quickly and accurately evaluate the size and power of their innovative ideas. Based on a combination of shopper behavior, attitude, usage and point-of-sale data, IRI’s time-tested and transformative approach reduces risks, increases success rates and avoids expensive new product failures. Product Innovation is one of five practice areas within the Consumer and Shopper Marketing Center of Excellence, which also includes Consumer Insights, Survey & Segmentation, Shopper Analytics and E-commerce.

BUILD a presence on e-tailer sites as good as owned-brand web pages. DRIVE shoppers to your brand presence on e-tailer sites with media executions. EARN online through integrated marketing and media executions online and in-store. To build a road map to execute, win and grow with e-commerce, contact IRI. www.iriworldwide.com 866-262-5973 8

E-COMMERCE OPPORTUNITIES

THE Next BEST THING WE ARE AT THE LEADING EDGE OF HOW VIRTUAL, AUGMENTED AND MIX REALITIES WILL CHANGE THE MANNER IN WHICH RETAILERS AND BRANDS ENGAGE WITH AMERICAN CONSUMERS. > By Amy Hedrick

In a consumer world where the life cycle of “the next best thing” is barely longer than the time it takes to say it, buzz words such as virtual, augmented and mixed reality could easily seem like a fad. That’s hardly the case. The market for virtual (VR) and augmented (AR) reality headsets is expected to grow to $143 billion with unit shipments hitting 200 million by 2021, according to the latest research from International Data Company (IDC). The long-term opportunity is only beginning to be realized and retailers and brands are beginning to take notice. The evolution to digital in consumerism has been rapid. From Baby Boomers to Gen Z, cutting edge technology has already changed the way all age cohorts

consume information and shop. Retail’s dependency transition to online and mobile is now ubiquitous. And mobile will in turn help that trend continue, as low-cost smartphone VR devices are seen as short-term catalysts for broader adoption of VR and AR. It’s worth noting the difference between the two: VR is a fully immersive 360 degree virtual environment you “step into” when wearing a VR headset while AR is an augmented overlay that changes visual components of your existing reality. While VR and AR have already proven to be alternative ways of consumer interaction, without question, virtual, augmented and mixed realities will be the media of Generation Z. Content creators and other visionaries are still in the early stages of optimizing the use of each medium and the industry is still testing consumer response to various applications. Meanwhile, the technology is finally catching up to the vision. From a best use perspective, the industry remains in an experimental phase with developers quickly finding their legs for the journey ahead. That’s a good thing because the gap between shopper expectations and retailer capabilities needs to close. Shoppers expect retailers to use technology, but a September 2017 survey from Digital Bridge, a communications infrastructure investment firm, showed that 51% think retailers are failing in their efforts to utilize new technology. A full 69% of shoppers expect retailers to launch an AR app within the next six months, and 44% want both AR and VR in the next 12 months. The Digital Bridge survey also showed that 41% of shoppers already expect AR access in retail, and 30% say they would be more likely to buy after using mixed/augmented reality to preview product. Other surveys, especially those looking at Gen Z, reveal similar findings which begs the question, why aren’t we seeing more use of VR and AR in retail? Mostly, companies are still trying to understand how to use them. With the inextricable merging of brand messaging and immediate product experience, there’s never been a better way to tell a brand’s story than through an immersive platform. Boomers NOVEMBER/DECEMBER 2017 Retail Leader.com

> TECHNOLOGY AND INNOVATION THE ENGAGEMENT ADVANTAGE

Amy Hedrick, co-founder of Reality Department

and Millennials may still be driving current spending forecast but Gens X and Z’s purchasing decisions will determine the future. And they have a very different relationship with tech and expectations around their consumer experience.

VR/AR IN RETAIL Of those 200 million VR and AR headsets IDC expects to ship by 2021, 82.5% of the AR devices and 28% of the VR devices will be used commercially. We will see the increased use of VR and AR headsets used at retail stores, real estate offices, design companies, museums, entertainment parks, theaters, schools and education programs. This leads to all sorts of possibilities for innovation to take place across all functions related to consumer goods, including sales, marketing, category management, promotions and packaging. Right now, AR is being used to sell products in categories such as design, furniture, clothing, makeup and eyewear. AR works well in these categories because it meets sales needs specific to these products. What’s fascinating is that even through many of these AR applications are rudimentary in their offerings, consumers have still been responsive. Why? Because AR is helping solve the “imagination gap.” Meanwhile, VR is helping companies maximize brand impact and consumer engagement by reducing the costs of prototyping concepts and market research, even allowing companies to dial down to small store sales without additional outlays often not supported for smaller markets. VR also works well for shopper research and concept prototyping because it can significantly reduce time and cost with a more efficient approach to product testing. By conceptualizing new ideas and testing out variations using virtual instead of physical space and mock ups, companies have been able to increase impact value through reduction of time, labor and outlay costs, accelerating speed to market. 20

Retail Leader.com NOVEMBER/DECEMBER 2017

The perennial challenge with marketing efforts is knowing what works and what doesn’t. With VR, advertising and marketing is low hanging fruit. While the consumer market has been slow to adopt, some of the barriers such as price point and form factor are changing quickly, giving rise to in-visor advertising opportunities. The same is true for AR. Given that shoppers can quickly click “close” pop up ads or have to wait a frustratingly long time to opt out of video ads, companies are re-thinking how to get the attention of shoppers. AR is providing an opportunity for brands to market in new ways, and most importantly, the customer isn’t tuning out. A great example is Lego’s use of AR to show kids what they could be making, by using an AR “reflection” of the final product. With AR, they turned one-dimensional information into a consumer experience. The idea of experience over product is nothing new. Analysts have long indicated this trend for everything from travel to the local mall. Experience in a multidirectional way has taken over traditional A to B directional marketing and consumerism. And consumers are showing a willingness to even pay ticket prices or provide data in exchange for these experiences. For example, entertainment studios have used VR as an ancillary experience, marketing its bigger product — driving movie sales while simultaneously creating a new revenue stream with ticketed VR experiences. With challenging conditions — and change — in brick and mortar, in-store tech such as Magic Mirror is being used to showcase products like makeup or eyewear, increasing in-store engagement and sales. Lowe’s is increasing in-store engagement while boosting sales by using VR in their “Holorooms”, helping customers visualize their renovation ideas and make smarter design, decorating and purchasing decisions. Retailers are seeing that experience based tech can lead to an in-store purchase by immersing users in a branded experience. With millions of people expected to have VR and AR at home (or on their phone), industries have a chance to reach the individual in new ways. A great example of a direct-to-consumer product is the Vivid Vision lazy eye disorder treatment. Here, opticians provide their patient a prescription supplement for in-office treatment for lazy eye correction, using the patient’s personal VR system — only available to download via prescription. As technology changes, retail has a great opportunity to change with it. The applications of AR and VR are broad and may one day soon have the “Amazon effect” of customers wanting a one-stop shop of fulfillment utilizing immersive, experiential realities that take them to new places, with much higher expectations. RL Amy Hedrick is Co-Founder of Reality Department, a San Diego-based developer of immersive on-site VR venues and crowd-based commercial VR solutions in content, hardware and software.

Retail Innovation That Makes a Lot of Cents.

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> STRATEGY

What is a meal kit anyway? MEAL KIT MANIA EBBED IN 2017 AND WITH THE CATEGORY NOW EVOLVING RAPIDLY 2018 PROMISES TO BE A SHAKEOUT YEAR FILLED WITH DEAL ACTIVITY AND DISRUPTION. > By Mike Troy and Gina Acosta

When meal kit providers burst on the food retailing scene five years ago, the digital hype cycle kicked in. The concept of home delivery of pre-portioned ingredients to create specific meals was new and interesting and quickly hailed as a major disruptor to the food retail industry. There seemed to be no end to the benefits consumers could realize with meal kits — less waste, simplified preparation of great food, convenience and even a way to spend quality time with the family. Then there was the key benefit — the one that start-ups in the retail space so often tout — avoiding a trip to the store. “The physical grocery store experience, while not horrible, is time-consuming. And it’s a consistently time-consuming task,” said Mike McDevitt, CEO of meal kit provider Terra’s Kitchen. “Consumers take an average of eight trips to the store per month, and spend an average of 10 hours grocery shopping. If people can just get those hours down

Retail Leader.com NOVEMBER/DECEMBER 2017

Terra’s Kitchen is based in Baltimore and sends out meal kits in what it calls a reusable shipping vessel. The container keeps a constant temperature for three days, minimizing food spoilage.

to four, they will do it. Meal kits have taken off because of the simplicity of ordering meals online. The simplicity of the user experience. You are not shopping for all of these individual ingredients, which can be cumbersome online. You’re getting to the end game quickly.” McDevitt is correct that meal kits have taken off, especially in terms of the proliferation of offerings which are segmented by type of food, speed of preparation, pricing and delivery options. For example, Terra’s Kitchen is focused on Mediterranean, paleo, vegan and gluten free recipes and it provides a week’s worth of meals at one time in a returnable cooler. “Our meals are delivered in a reusable shipping vessel that stays the same temperature up to three days. No oxidation of vegetables or spoilage occurs. We ship the vessel and we pick it up the next day,” McDevitt said. Terra’s Kitchen, founded in 2015, is one of the newer en-

trants in the meal kit world that saw dramatic changes during the back half of 2017. Even more change is expected in 2018 as pure play companies attempt to become profitable, while established retailers hone their offerings and a share of stomach battle unfolds among retailers and food service operators. The coming year promises to be challenging for pure play meal kit providers who aren’t the next big thing anymore. Companies such as Blue Apron, Hellofresh, Plated, Purple Carrot, Sun Basket, Gobble and others have enjoyed tremendous media exposure from the countless news organizations who touted their offerings and conducted comparisons of the services. All the publicity helped generate trial, but repeat purchase was harder to come by without huge investments in marketing and customer subsidies. Blue Apron showed how dependent it was on marketing after it cut spending during its third quarter ended Sept. 30. Marketing expense was reduced 31% to $34.2 million, or 16.3% of sales, in the third quarter, compared to $49.6 million, or 24.2% of sales the prior year. As a result, sales increased a meager 3% to $211. “Growth this quarter was largely impacted by the planned decrease in marketing spend of more than 30% year-over-year, that resulted in fewer new customers as we focused on the operational challenges that arose during the transition of volumes to our Linden (N.J. distribution) facility,” CFO Brad Dickerson said during a Nov. 2 conference call. It’s not unheard of for a retailer to cut back on marketing while it gets its operational house in order, but Blue Apron’s move raises serious doubts about the viability of the meal kit model and its grand aspiration that implied a huge addressable market: to make incredible home cooking accessible to everyone. The company claims it is reimagining the way that food is produced, distributed, and consumed, and as a result, building a better food system that benefits consumers, food producers, and the planet. Those ambitions have been derailed for the time being and perhaps permanently as a standalone company. The reduction in marketing spend, much of which goes to subsidized trial use, caused Blue Apron’s customer count to decline 6% while total sales increased 3% as average order size help offset the overall customer decline. The company also laid off 6% of its work force, reported a net loss of $87.2 million, delayed the opening of a new fulfilment center in California. A planned reduction in fourth quarter marketing means Blue Apron’s customer count is likely to decline further while it attempts to increase sales to its best customers. While Blue Apron is reeling from operational challenges, its rival Hellofresh spent an even larger percentage of its revenues on marketing in the run up to its early November IPO in Germany. Hellofresh

Terra’s Kitchen CEO Mike McDevitt says retailers have a chance to learn innovative lessons from meal kit providers.

revealed in its prospectus filed with Germany regulators that it spent 28.3% of its total revenues of $500 million on marketing during the six months ended June 30. The investment in marketing, which includes subsidized offers to generate trial, paid off in the U.S. where the number of active customers (those who received an order during the past three months) doubled to 796,000 from 383,000 during the same period the prior year. The company’s U.S. sales increased to $300.5 million, roughly double the six month period the prior year. While that is less than Blue Apron’s sales of $482.9 million during the comparable period, Hellofresh has an equally lofty vision of becoming a global lifestyle brand that stands for delicious, fresh and inspiring meals. “We believe that we are at the forefront of disrupting the highly fragmented and large food industry that is only at the very beginning of its online transition,” is how Hellofresh describes its market opportunity.

DELIVERY OR PICK UP There is widespread agreement in the food retailing industry that the coming years will see a larger percentage of food sales migrate online. The debate is around how much, how fast and what does “online” even mean any more with digitally enabled sales now fulfilled by physical stores. Meal kits are one option, but building the scale to achieve profitability, let alone an attractive level of profitability, is questionable. For example, while Hellofresh doubled its U.S. sales during the first half of the year, it is more dependent on marketing than Blue Apron which suggests it too would see a loss of momentum if it were to reign in spending. NOVEMBER/DECEMBER 2017 Retail Leader.com

> STRATEGY It helps explain why a company like Plated was willing to be acquired by Albertons in September for a reported $200 million. The deal was rooted in an omnichannel vision of meal kits future and for Plated’s venture capital owners a deal with Albertsons represented an attractive and timely exit strategy. Between the 2,300 stores Albertsons operates under a variety of banners and Plated’s customer database, the companies expect to be better able to serve shoppers wherever and however they choose. Albertsons will enable Plated to expand beyond its existing subscription model by offering Plated meal kits at stores and Albertsons.com while Plated’s customer acquisition efforts benefit from exposure to the 35 million shoppers who visit Albertsons stores each week. It sounds like a winning combination and speaks to the likelihood that the meal kits space will be incredibly active in 2018 with traditional food retailers playing a central role and everyone concerned about what happens next with Amazon and Whole Foods. To be

sure, after ceding the meal kit opportunity to the start up world, traditional retailers have awoken to their potential to dominate the space (finally) by leveraging their infrastructure, sourcing capabilities, brand equity and proximity to customers. Nearly half of U.S. consumers say they would be more likely to purchase a meal kit if it were less expensive and 36% would like to be able to buy kits in their local grocery store, according to recent Nielsen research. One of the way leading operators are offering that capability is by partnering with eMeals, a company that began more than a decade ago as a meal planning service. Users of the eMeals service can choose from 100 new weekly recipes and send their shopping list to AmazonFresh, Walmart or Kroger with one click. Shoppers then have the option of delivery via Instacart or curbside pickup the same day. “We listened to our customers and they are all timestarved and demanding that next level of convenience. By combining our recipe planning technology with retailers we have cut the wait time, we have reduced the risk of food spoilage in transit, and we have also given the customer the chance to INTEREST IN FRESH PREPARED SOLUTIONS look at the head of lettuce before they buy it and cook with it,” said Forrest Collier, CEO of Birmingham, Ala.-based eMeals. “Our service PRE-PACKAGED, FRESHLY COOKED FOR HEAT AND EAT is actually expediting online grocery adoption. If a customer can click on a picture of a recipe FRESH MEAL KIT WITH and those 10 ingredients drop into a shopping ALL THE INGREDIENTS list and online cart, the customer is a lot more PREPACKAGED, likely to give online grocery a try.” READY TO EAT Shoppers are doing more than “trying” online grocery, judging from the rapid expansion HOT & COLD SERVER STATIONS of click and collect capabilities Walmart and Kroger locations. Walmart offer pick up service SELF-SERVE HOT at 1,000 location in 2017 and will add another & COLD ITEMS 1,000 in 2018. Picking up an online order at a 0% 5% 10% 15% 20% 25% 30% 35% 40% physical location rather than venturing inside SOURCE: The Mindset of the Meal Kit Consumer study, March 2017 the store fits many shoppers definition of convenience. Now retailer offer more convenience by providing easy to prepare meal kits. REASONS FOR MEAL KITS “Once U.S. consumers get a taste of online grocery and how convenient it is, they won’t go back to the store. What will happen is that SAVES MEAL eventually most U.S. consumers will be choosPLANNING TIME ing between doorstep delivery and curbside SHORT PREP & pickup,” Collier said. COOK TIME

SHARE OF STOMACH

SAVES SHOPPING TIME TO TRY NEW RECIPES HEALTHY 0%

10%

15%

20%

25%

30%

35%

SOURCE: The Mindset of the Meal Kit Consumer study, March 2017

Retail Leader.com NOVEMBER/DECEMBER 2017

40%

45%

50%

Predictions about the next big things seldom materialize and the meal kit phenomenon is no exception. A home delivered meal kit that requires preparation is a digital extension of the home meal replacement (HMR) trend that swept through the food retail industry in the mid-90s. What’s changed from the customers’ perspective is how they calculate

EMeals CEO Forrest Collier (below) says his service is expediting consumer adoption of online grocery. EMeals started out as a recipe planning platform but has evolved to offer meal kits via a one-click shopping list that connects to online grocery pickup and delivery partners for convenient and affordable fulfillment.

convenience; purchase a meal at a physical store that is table ready after heating or have ingredients home delivered that require preparation. “A grocery store’s innovation has to come from more than just putting a meal kit in a refrigerated case,” said Terra’s Kitchen CEO McDevitt. “Food retailers have a lot to gain from learning from the e-commerce business. There’s a lot they can learn about user experience and personalization that retailers have been able to ignore for years. They haven’t had to be better. This new world of e-commerce and grocery having to learn from each other is good, because it’s going to lead to a better experience for the consumer.” A better experience for the consumer requires retailers to think differently about the problem meal kits solve; hungry customers who want food that is good, fast, simple, affordable. Meal kit marketing has also touted the rewarding aspect of preparation and time with family, but that feel good sheen wears off quickly, according to research from Cardlytics. More than half of meal kit subscribers cancel their subscriptions within the first six months, according to the purchase analytics firm. In fact, nearly three-quarters of new subscribers gave up the services within a year. Why are consumers not sticking with some meal kits? Because many of these consumers want even faster fulfillment and prep time. And many don’t want to deal with packaging or un-appetizing recipes. That’s why the definition of “meal kit” for millions of Americans is defined as food delivered from a restaurant. While companies such as Blue Apron, Hellofresh and others have burned through millions to produce unprofitable sales, crowdsourced delivery platforms such as Uber Eats and Grubhub are helping restaurants grow share of stomach. Both services help restaurants leverage their fixed costs by increasing the productivity of their physical locations and create a competitive challenge for traditional retailers attempt-

ing to raise the quality of prepared food offerings. Grubhub has been rolling up the restaurant delivery business since going public in 2014 and in the third quarter it acquired three more companies. It also generates real profits from a proven business model, albeit one that is dependent on crowdsourced labor to execute deliveries. Matthew Maloney, president and CEO of Grubhub, founded the company which generated revenues of $478 million and profits of $45.5 million during the first nine months of the year. Grubhub makes money by earning commissions from the restaurant sales its platform facilitates. Grubhub delivered more than $2.6 billion worth of food to 10 million customers in 80 markets during the first nine months of 2017. Uber Eats is available in 89 markets. “With a network of 75,000 restaurants and growing, we have the industry’s largest online delivery marketplace, and we will continue to aggressively expand and deepen our reach, increasing our value to both diners and restaurant partners as we grow,” Maloney said following the release of third quarter results. The growth of restaurant delivery represents a new front in the food retailing industry’s escalating battle for share of stomach where meal kits, once viewed as a threat, have morphed into an opportunity. Meanwhile, the timeless question of “what’s for dinner,” remains the same. However, the big shift going forward is that consumers options for satisfying that need have changed dramatically and there is no longer a clear distinction between food at home and food away from home. RL NOVEMBER/DECEMBER 2017 Retail Leader.com

> COVER STORY

Captain America!

Kroger CEO Rodney McMullen’s plan to become “America’s Grocer.”

Nothing gets the attention of the board of directors and C-suite like seeing a third of their company’s market capitalization evaporate in a single day. That’s what happened in mid-June when The Kroger Co. learned the meaning of the Amazon effect first hand. Kroger wasn’t having a great year to begin with when Amazon’s acquisition of Whole Foods was announced in mid-June, but the deal put Kroger shares in free fall from which they have not recovered. The $115 billion operator of 2,800 stores has been in high gear ever since, moving aggressively on physical and digital initiatives to grow sales and win back investors. The effort is code named Restock Kroger and details of the multifaceted plan shared with investors on Oct. 11 could help the company live up to its self-proclaimed status as America’s grocer — if successfully executed. It’s a big “if ” because even though Kroger has considerable assets and industry leading capabilities, the challenges it faces are numerous and extend beyond the uncertain impact of the Amazon Whole Foods combination. Kroger is coping with the continuing impact of a resurgent Walmart and expansion minded hard discounters Aldi and Lidl. Broadly

Retail Leader.com NOVEMBER/DECEMBER 2017

speaking, the entire supermarket channel is threatened by the loss of customer traffic as consumer purchases of center store categories migrate online. The list of challenges Kroger faces is long, but that’s nothing new in the food retailing world where the mindset of Kroger Chairman and CEO Rodney McMullen is to always expect the next year to be more competitive than the last and for change to happen quicker. That will be the case for Kroger in 2018, McMullen’s fourth year as CEO, as it looks to execute components of the Restock Kroger plan that include: Leveraging data even more aggressively and accurately than in the past to achieve shopper personalization strategies. Increasing re-modeling activity and the optimization of assortments so that an unprecedented 20% to 30% of stores are touched in 2018. Investing in smart, targeted pricing and promotional activity and continued growth of Kroger owned brands. Expanding omnichannel programs such as Click List beyond the current 1,000 locations. Teaming with Google on cloud computing to accelerate digital and e-commerce services. Executing a sweeping corporate responsibility and reputation initiative called, “Zero Hunger, Zero Waste.” “We understand that today’s marketplace is shifting rapidly. Kroger’s success has always depended on our ability to proactively address changes by focusing relentlessly on our customers,” McMullen said. “We have the scale, the data, physical assets and human connection to win. Combining our food expertise and data analytics uniquely positions Kroger to create new and

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> COVER STORY “Putting up a sign and handing out bags with the groceries a customer may have ordered online is one thing, managing their entire end-to-end experience in a personalized way is the differentiated part,” —Yael Cosset, Kroger Chief Digital Officer. highly relevant customer experiences, delivered both digitally and in stores.” Restock Kroger is meant to build on the company historical strengths but really accelerate efforts to grow in a food retailing marketplace the company now defines as a $1.5 trillion opportunity. That’s a lot bigger number than the roughly $600 to $800 billion figure most food retailers use to described the food at home universe. Kroger is including food away from home, basically restaurants, to get to the $1.5 trillion. “The market is incredibly fragmented, which creates all kinds of opportunities. In the past, you would have heard us talk about food in terms of $800 billion industry. Now you will hear us talk about it in terms of $1.5 trillion business opportunity. Because if you’re eating, we want to serve you, and unless it’s a white tablecloth restaurant, we view that as a meal that we should be able to provide to you,” McMullen said. His expanded view of Kroger’s share of stomach opportunity isn’t just about convincing analysts to think differently about Kroger’s growth prospects. The changing nature of competition for share of stomach is real and the line between supermarkets and restaurants has forever blurred thanks to improved meal offerings at supermarkets, meal kits and home delivery from restaurants. Kroger recently opened its own restaurant called Kitchen 1883 in Cincinnati.

BEEN THERE, DONE THAT Information shared at investor conferences can often serve as catalyst to move a company’s stock price. That wasn’t the case with Kroger’s event which failed to impress investors judging from Kroger shares which remain near their 52-week low. The aversion to Kroger’s stock stems from a gloom and doom outlook on the part of investors convinced food retailing is about to go through a phase of disruption unlike anything seen before. While acknowledging the dynamism unfolding daily, McMullen also views the tremendous change happening in the current climate as part of the normal strategic repositioning that goes on in food retailing industry. As a 37-year Kroger veteran, McMullen has been through a few cycles, the most notable of which involved Walmart’s ascension to become the

nation’s largest food retailer. He has seen major disruption before. “Looking back in retail, we find every 12 to 15 years you really have to reposition the company and that usually takes three to four years for that to happen. We’re in the middle of that process,” McMullen said. “We feel really good about where we are. We’ve done it before, and we are doing it again.” There is a general feeling though that this time it’s different, with dire warnings for food retail being sounded from the industry’s leading trade association. Food Marketing Institute Senior Vice President and Chief Collaboration Officer Mark Baum doesn’t pull punches when describing the scenario facing food retailers. “There is no doubt that the industry is at a tipping point. More shoppers are buying more of their food and related products across more channels than ever before. Center store categories are already making their way online and it is expected to continue,” Baum said. “We think the industry will reach digital maturity and saturation more quickly than other industries that went online earlier.” FMI and Nielsen in January 2017 projected that online food sales would hit $100 billion by 2025, or roughly equivalent to the sales volume of about 4,000 grocery stores. Baum thinks the $100 billion figure is already too low. “The digital growth curve will rapidly accelerate over the next five years,” Baum said. “Food retailers need to develop deep competencies and digital capabilities that can scale while enhancing physical assets. World class in store experiences coupled with digital capabilities will win the day.” Kroger is doing many of the things Baum describes. Already a leader in leveraging data and analytics, Kroger is taking those capabilities to new heights to drive personalization, while upgrading stores and providing ever more seamless experiences. One of the most significant involves a massive store assortment optimization effort that, once again, involves leveraging data to drive sales growth. “The other key with space optimization is how many operating efficiencies we’re building into the space

“I don’t know if I would go as far as to say that every store is going to be entirely different, but there will vast differences between a lot of stores,” —Mike Donnelly, Kroger EVP and COO. 28

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KROGER’S STORE COUNT BY STATE optimization thought process, where we may not have always done that on our historical remodel program,” said Mike Donnelly, Kroger’s Executive Vice President and COO responsible for merchandising and operations. “Almost every one of the (stores we touch) starts with how can we do this and make it more efficient to run and operate the store?” That means making products grab and go instead of placed behind a counter, adding self checkout to more locations, rationalizing offerings in categories where shopper insights confirm it is more important to have depth than breadth and providing unique assortments specific communities. “I don’t know if I would go as far as to say that every store is going to be entirely different, but there will vast differences between a lot of stores,” Donnelly said.

WINNING WITH DATA Kroger is a data driven technology company operating a network of retail food stores integrated with a digital user interface to offer customers a seamless way to engage with rich experiences and content. Framing the supermarket company in terms of the technology industry is one way to appreciate Kroger’s data advantage. Analysts agree the company’s capabilities are impressive and routinely cited data insights an analytics as the secret sauce behind how Kroger produced a decade long run of uninterrupted identical store sales growth. The impressive streak came to an end in the third quarter of 2016 and stayed negative until the second quarter this year when Kroger posted a 0.7% gain. Now, company executives want investors to believe it has turned the corner and unsurpassed data capabilities are key to future growth. “We can see 96% of every transaction that goes through our store. I don’t care if that transaction is a card transaction, debit or credit, or a cash transaction. I can tie that back to a household,” said Stuart Aitken, CEO of 84.51°, Kroger’s wholly-owned insights and analytics subsidiary. “We also have clickstream data, feedback data, rest of market data, demographic data. Across this entire data spectrum, we create what we call our data DNA layer. That data DNA layer has 2,700 attributes today and is growing all the time.” Within those attributes, Aitken said Kroger knows things about household’s competitive geo-densities of competing retailers and restaurants, household size, hobbies, spending across various categories of travel and entertainment that offer a view of lifestyle, social media data digital device type. “Data is critical in order to truly personalize. It creates a rich picture of our customers,” Aitken said. From that rich picture, Kroger is able to develop strategies that grow sales and in turn create more data in a sort of virtuous cycle. But to do so means Kroger has to stay ahead of the pack in how shoppers interact with stores and interact with customer facing technology. For example, the order online pick up at store

State California

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Store Count 1/31/16

Food 4 Less, Foods Co., Ralphs Ohio Kroger, Kroger Marketplace, Ruler Foods Texas Kroger, Kroger Marketplace Georgia Kroger, Kroger Marketplace, Harris Teeter North Carolina Kroger, Harris Teeter Indiana Jay C, Kroger, Kroger Marketplace, Owen’s, Pay Less Super Markets, Ruler Foods Colorado City Market, King Soopers, King Soopers Marketplace Michigan Kroger, Kroger Marketplace Arizona Fry’s Food & Drug, Fry’s Marketplace, Smith’s Tennessee Kroger, Kroger Marketplace Washington Fred Meyer, QFC Wisconsin Pick ‘n Save, Copps, Metro Market Kentucky Kroger, Kroger Marketplace, Ruler Foods Virginia Kroger, Kroger Marketplace, Harris Teeter Illinois Food 4 Less, Kroger, Mariano’s, Ruler Foods Kansas Dillons Food Stores, Dillons Marketplace Oregon Fred Meyer, QFC Utah City Market, Smith’s, Smith’s Marketplace Nevada Smith’s West Virginia Kroger South Carolina Kroger, Harris Teeter Arkansas Kroger, Kroger Marketplace Mississippi Kroger New Mexico City Market, Price Rite, Smith’s, Smith’s Marketplace Missouri Gerbes Super Markets, Kroger, Ruler Foods Idaho Fred Meyer, Smith’s Maryland Harris Teeter Alaska Fred Meyer Nebraska Baker’s Alabama Kroger Wyoming City Market, King Soopers, Smith’s Louisiana Kroger Montana Smith’s Washington, D.C. Harris Teeter Delaware Harris Teeter Florida Harris Teeter TOTAL

309 212 211 174 162

152 146 128 127 123 119 115 112 111 103 62 57 54 44 42 36 32 31 25 17 15 15 11 11 11 9 9 4 4 2 1 2,796

NOVEMBER/DECEMBER 2017 Retail Leader.com

> COVER STORY

Roughly half of Kroger’s nearly 2,800 stores operate under the corporate banner, leaving huge sections of the country more familiar with regional names such as City Market, above.

service known as Click List is now available at 1,000 locations and customers love it, according to Yael Cosset, Kroger’s Chief Digital Officer. “Adoption of the service has been tremendous. It’s a huge endorsement of both the quality of the service and the quality of the experience, but also the readiness of our customer telling us this is the experience they want to have,” Cosset said. “Putting up a sign and handing out bags with the groceries a customer may have ordered online is one thing, managing their entire end-to-end experience in a personalized way is the differentiated part.” To further differentiate on the experience front Cosset said Kroger is working aggressively to position itself for where the market is headed at an accelerating rate with mobile and eventually voice. “Our customers historically have been heavy on the web engagement, somewhat light on the mobile and very, very light on voice. That is shifting today and we expect that based on industry trends to continue to shift on an accelerated pace,” Cosset said. Loyal customers interacting with Kroger with greater frequency via digital devices will simply add to

Kroger’s already vast data warehouse and lead to new opportunities. Cosset refers to the phenomenon as a constantly changing data ecosystem that is welcoming new partners. “We’re bringing new partners onboard to leverage either technology capability that they’ve built or technology capabilities we can build together or just linking together to enable more services that are more personalized and more differentiated than you can find in the rest of the industry. One of the company’s newest partners is Google. Kroger in early November announced plans to partner with the Google Cloud Platform and create a cloud enamblement team. The adoption of Google signals the company’s commitment to position Kroger as the industry leader for ship-to-home and home delivery, according to Kroger CIO Chris Hjelm. “The expansion of our cloud computing portfolio will be a foundational cornerstone to current and future initiatives that will drive measurable business value by advancing Kroger’s ability to offer the digital and e-commerce services our customers want most,” according to Hjelm.

SOURCING LOCAL SUPPLIERS Kroger plans to host Natural Foods Innovation Summit events several times a year following a successful inaugural event held Oct. 12, 2107. The event, in partnership with 84.51°, the retailer’s insights and analytics group, was held in Cincinnati and involved more than 40 brands, according to the company. “(The natural and organic products) category was a $16 billion business for us in 2016,” Kroger’s Vice President of Natural Food, Jill McIntosh said, adding that the event served as an, “innovation platform that allows us to continue to expand our natural foods product portfolio by partnering with emerging brands on micro and macro levels.” Kroger said its team of buyers continuously look for opportunities to purchase regionally that allow the company to expand its product portfolio for customers, stimulate the local economy and enhance product freshness. Sourcing locally also supports the company’s sustainability commitments, including and recently announced program called, “Zero Hunger – Zero Waste.” (See page 32.) To be even more effective in that regard, the company has essentially issued an open call to suppliers of local and natural food brands and encourages those interested to visit Kroger.Com/WeAreLocal.

Retail Leader.com NOVEMBER/DECEMBER 2017

AMERICA’S GROCER? “We are proud to be America’s grocer,” is how McMullen referred to Kroger in his letter to shareholders in early 2017. Since then the phrase has appeared selectively in press releases and it is also how McMullen began his remarks at the October investor conference. “As you know, we are America’s grocer,” told the analysts in New York. Actually, aside from Kroger and those paying close attention to the company’s public comments, the America’s grocer claim is lost on, well, most Americans. Kroger has a large footprint with 2,800 stores but it has some huge voids. There are no Kroger stores in New York and only one location in Florida. Even in states where it does operate, only about half of its stores fly the Kroger banner. Residents of California, for example, only know the company by its Ralph’s and Food 4 Less brands. If any company wanted to lay claim to being America’s grocer it would be Kroger’s arch rival Walmart. Its U.S. division operates more than 3,500 supercenters and 735 small format stores in all 50 states under the Walmart and roughly half its annual sales of $307 billion come from food. Kroger’s not going to match Walmart’s presence anytime soon, but it could close some holes in its physical footprint that would give the company more of a national presence. One way to do that would be through acquisitions, something Kroger could be in a better position to do in 2018 following a decision to sell its 784-unit convenience store business. Kroger hired Goldman Sachs & Co. in October to find a buyer and extract maximum value

for the $4 billion business, the proceeds of which could be used to make an acquisition of its own. Kroger’s last deal of any significance from a physical footprint standpoint came in January 2014 when it purchased 227 Harris Teeter stores for $2.5 billion. More recently, Kroger purchased ModernHEALTH for $407 million in September 2016, Roundy’s supermarkets for $866 million in December 2015 and Vitacost.com for $287 million in August 2014. Kroger doesn’t need to do a deal or sell more food than Walmart to make the America’s grocer moniker work for it because store count and sales aren’t the only metrics that matter. Kroger seems to have embraced the notion of America’s grocer as a sort of rallying cry for its 450,000 employees. It is also consistent with the sense of idealism captured by Kroger’s other aspirational vision to, “feed the human spirit.” Even the way the company described the Restock Kroger plan, “to redefine the food and grocery customer experience in America,” has a lofty idealism to it. “We know that when we serve America through food inspiration and uplift, we create value for our shareholders, customers and associates,” McMullen said before reeling off a list of competitive strengths. “Kroger has more data than any of our competitors, which leads to deep customer knowledge and unparalleled personalization. We have incredibly convenient locations and platforms for pickup and delivery within one-to-two miles of our customers. We have a leadership team that combines deep experience with creative new talent. We have the scale to win with more than 60 million households shopping with us annually.” Kroger isn’t just selling food, the company is uplifting and improving lives, according to McMullen. Who would expect any less from a company claiming to be America’s grocer. RL Any company that’s going to call itself America’s grocer needs to be on trend with robust offerings of organics, quality prepared foods to capture diverse meal occasions and specialty products such as gourmet cheeses.

NOVEMBER/DECEMBER 2017 Retail Leader.com

> COVER STORY AMERICA’S GROCER TACKLES HUNGER AND WASTE. In calling itself “America’s Grocer” Kroger has come to accept the enormous leadership responsibilities implied in such a grand distinction. Foremost among them is a new and recently announced national effort aimed at ending hunger in the communities where Kroger operates and eliminating food waste by 2025. The two objectives are intertwined because, as Kroger Chairman and CEO Rodney McMullen noted when the initiative was announced in September, more than 40% of food produced in the U.S. goes unconsumed and one in eight people struggle with hunger. “That just doesn’t make sense. As America’s grocer and one of the largest retailers in the world, we are committing to doing something about it,” McMullen said. “No family in a community we serve should

Retail Leader.com NOVEMBER/DECEMBER 2017

ever go hungry, and no food in a store we operate should ever go to waste.” The company has set goals that address the interconnection between waste and hunger. For example, by donating three billion meals by 2025 the company will also be able to waste less food in stores and it expect to reduce waste as it thoroughly examines its upstream supply chain back to the farm level. Plans also call for meal donations to be more balanced and to share food waste solutions with other retailers, restaurants and local governments. The company recognizes it does not have all the answers and is crowdsourcing for solutions, asking communities, partners and other stakeholders to offer ideas, according to Jessica Adelman, Kroger’s Group Vice President of Corporate Affairs. RL

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> SUPPLY CHAIN

Gaining Clarity on Transparency

LETTING CONSUMERS CALL THE SHOTS ISN’T ALWAYS SUCH A BAD THING. > By Peter Breen As a trend, consumers demanding more explicit information about when, where and how products are made wasn’t exactly met with open arms by the industry — especially since that demand has sometimes required companies to change longstanding business practices related to product sourcing, development, manufacturing and distribution. Resistance to change is natural, of course. In this case, the more that consumers ask for products to be natural, the more change becomes necessary. But resistance is futile, as they say. And in this case, it would be shortsighted as well. Based on the general mood at Path to Purchase Institute’s first TransparencyIQ conference, held in October in Chicago, initial resistance has been replaced by pragmatism and maybe even a little optimism. It turns out, you see, that becoming fully transparent about your products makes sound business sense, and not just because it satisfies a growing consumer demand. Transparency can help a company achieve corporate goals focused on sustainability and fair trade; it can improve sourcing, product safety and other supply chain practices; it can provide a competitive advantage (at least for now) for brands and retailers; and yes, it can drive incremental sales and even consumer loyalty at a time when both seem to be waning for traditional brands. All of those topics, and at least a few more, were covered during the event. As Label Insight chief marketing officer Patrick Moorhead put it, “Transparency is not a one-note song” related solely to fully divulging product ingredients to consumers. Here are some of the points — data and otherwise — that struck a chord with me over the course of the day:

Only 12% of consumers view brands as the most trusted source of information about their own products — although 67% think they should be, according to Label Insight data. That’s an alarming disparity: Brands rank highest in consumer expectation, but dead last in trust, as Moorhead put it. Despite the industry’s best efforts, incomplete and incorrect information is still widespread online. And that can make a product “defective” after purchase when it doesn’t meet consumer’s pre-purchase expectations, according to Mike Wehrs, global head of data and products for GS1. Unilever is going well beyond what might be required at the moment by getting more explicit with ingredient listings than regulations demand, helping to promote the industry-wide SmartLabel initiative, and even trying to get product information into the hands 34

Retail Leader.com NOVEMBER/DECEMBER 2017

Peter Breen

of consumers who don’t have internet access, said Tom Langan, the company’s North American director of external affairs. Hershey’s involvement in SmartLabel has improved its own internal data governance, said Deborah Arcoleo, director of product transparency. (Langan credited Hershey with hatching the SmartLabel effort, which has 90 associations and companies working together to drive greater, standardized transparency.) “Your ability to be transparent is only as good as your data architecture,” which involves building a content database in conjunction with the data management and IS teams, said Arcoleo. It also means adapting internal content that “was never intended to be consumer-facing,” she noted. “You can’t share what you don’t store and maintain.” Walmart is conducting research to determine what information consumers want, but also when they want it and how badly they need it — in other words, what information is simply “good to have” and what info impacts purchase decisions, according to Fred Bedore, senior director of sustainability. (For instance, a product’s “locally grown” status is something shoppers want to know in the store.) But improving transparency throughout the supply chain has multiple business benefits, he explained. Implementing blockchain technology (which makes it impossible for existing data to be altered as it moves from one source to another) has reduced the time it takes to trace a bad batch of produce from seven days to just two seconds. That means retailers will no longer have to pull every unit in the supply chain in the name of safety — and affected consumers can be informed much faster without causing alarm among the rest of the populace. Raley’s hopes to use transparency to “change the way the world eats, one plate at a time,” chief executive officer Michael Teel said. The new Raley’s Shelf Guide sets stricter standards for products via three proprietary classifications: Nutrient Dense, Minimally Processed and No Sugar Added (including substitutes). Raley’s wants to work with manufacturers to help them develop more products that will meet these standards. But at some point, the retailer will be open to sharing the classifications with other retailers as well. This transparency bug must be contagious. Peter Breen is Editor-in-Chief of Consumers Goods Technology, a Retail Leader sister publication and part of Ensemble IQ.

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Sub󰇷󰇷󰇷󰇷󰇷󰇷󰇷󰇷󰇷󰇷󰇷 󰇷󰇷󰇷 󰇷󰇷󰇷󰇷󰇷 󰇷󰇷󰇷󰇷󰇷󰇷󰇷󰇷 ne󰇿󰇿󰇿󰇿󰇿󰇿󰇿󰇿󰇿󰇷󰇷󰇷󰇷󰇷 󰇿󰇿󰇷 󰇿󰇿󰇿󰇿󰇿󰇿󰇿 󰇷󰇷󰇵󰇵󰇵󰇿󰇷󰇵 d󰇷󰇿󰇿󰇿󰇿 󰇹󰇹󰇹󰇹󰇿󰇹󰇹 󰇹󰇹u󰇹󰇷󰇷󰇹󰇹󰇷󰇷󰇿󰇿󰇹 󰇿󰇿󰇹󰇹en󰇷󰇷󰇿󰇿󰈧 󰇿e󰇿󰇿󰇷󰇷󰇷󰇷󰇹󰇹󰇹󰇹󰇹󰇧󰇵󰇵 󰇿󰇿n󰇷󰇷 󰇹󰇹󰇷󰇷󰇹󰇿󰇿 󰇵󰇵󰇷󰇷󰇧󰇧󰇷󰇷󰇷󰇷󰇧󰇷󰇷󰇷󰇷 f󰇷󰇶󰇶 󰇷󰇷󰇶󰇿󰇿 󰇶󰇶󰇷󰇷󰇷󰇷󰇷󰇷󰇷󰇿 󰇹󰇹󰇹󰇹󰇶󰇶u󰇹󰇿󰇿󰇹󰇹󰇷󰈦

> SUPPLY CHAIN

Delivering Supply Chain

INNOVATION UPS WANTS TO BE REGARDED AS AN INNOVATIVE TECHNOLOGY COMPANY FOCUSED ON DISRUPTION AND IT HAS SOME BIG IDEAS IN STORE FOR 2018. > By Mike Troy

UPS has been a supply chain and logistics leader for a long time. But that’s not good enough in the digital age where technology is changing everything and all companies are competing for tech talent. It’s why UPS Chief Information and Engineering Officer Juan Perez is on a mission to change how people — employees, customers and potential new hires — think about the 110 year old company. “We don’t think of ourselves as a logistics company or a small package delivery company. We think of ourselves as a technology company,” Perez said. “It is one of the key messages I share with people to get them to think about UPS differently.” The reason why relates to how UPS is leveraging technology to transform its business and the technology talent required to do so. When a company is best known for its fleet of brown trucks, it makes it hard to compete for technology professionals alongside alongside Google, Apple and Facebook, according to Perez. “We need to constantly communicate to the world that we are not just a logistics company that does many great things for our customers, but we are in fact today a technology company,” Perez said. The ability to convey that message is one of the reasons Perez agreed to participate as a key note speaker at Gartner’s recent Symposium IT/xpo. UPS has quite a few interesting projects underway on its innovation roadmap that promise to make package delivery more efficient and flexible. For starters, those handheld devices drivers have been carrying since 1989,

UPS CIO Juan Perez discusses the release of the sixth iteration of the company’s Delivery Information Activation Device (DIAD) planned for 2018.

Retail Leader.com NOVEMBER/DECEMBER 2017

long before the advent of smartphones, they are about to get a major upgrade. The unit is known as a Delivery Information Activation Device, or DIAD, and the fifth version of the device is nearing the end of its useful life with a sixth version due for release in 2018. “We are now in the middle of working on the new iteration of the mobile device our drivers will use. It will be a complete transformation in the way we do business,” Perez said. “We will have a different form factor that will be easier to use. We are making it easier for people to learn how to use it to enhance the way we communicate and engage with our empowered consumers.” Serving the empowered consumer who wants everything on their terms is also at the root of another innovation UPS plans to release in 2018. The company’s technology platform that determines a driver’s route is known as ORION, short for On Road Integrated Optimization and Navigation system. ORION is not new, in fact Perez said it has saved the company roughly $400 million since it was launched because route optimization savings can add up quick for a company that operates 100,000 vehicles worldwide. In the U.S. alone, UPS can save $50 million annually simply by helping every driver avoid one mile per day over the course of a year, according to Perez. When ORION 3.0 is released next year one of the advantage with be even greater route optimization because during the course of a day in which a driver makes an average of 120-130 deliveries the optimal route can change multiple times based on customer requests, traffic or other variables UPS systems are able to capture and analyze in near real time. The need for ORION 3.0 stems from a customer control initiative introduced several years ago called UPS My Choice that basically lets a customer control when and where they want a package delivered. It added complexity to the business, but it was what customers wanted. So far, there are 39 million subscribers to the service. “Customers can get alerts when packages will be delivered and you can communicate with drivers about what you want them to do for you. You can tell UPS you will be on vacation to hold shipments or have packages delivered somewhere else,” Perez said. UPS drivers are in for some big adjustments in 2018 between the sixth iteration of DIAD and ORION 3.0, and the company is also leveraging technology for safety oriented training purposes. UPS recently launched a virtual reality

application for training drivers that sounds similar to the type of flight simulators used to train UPS pilots. “Drivers encounter all kinds of really interesting things when they are making deliveries. We cannot train them on everything when we are speaking with them or putting them behind the wheel,” Perez said. “We’ve created technology to immerse them in all kinds of scenarios that will get them to think different about safety, the safety of customers, their personal safety and how to deliver packages effectively.” How extensively UPS has embraced innovation is evident when Perez reels of some of the other hot areas the company has developed or is expending more energy against. For example, UPS is now on its third generation chat bot which Perez believes will change the way the company interacts with customers. It is

also active with autonomous vehicles and drones. “We continue to make investments in autonomous vehicles and are pretty bullish in that domain. It is something that we believe will have a place at UPS in the years to come,” Perez said. “Yes, we are looking at drones.” While he doesn’t expect the company will have thousands and thousands of drones, he does envision use cases in remote areas where drones deployed from the roof of a UPS truck make sense. The range of initiatives underway at UPS are consistent with what the company calls founder’s mentality of being constructively dissatisfied to unlock. “We are really committed to opening the door for people who want to innovate to be able to bring their ideas to the table,” Perez said. RL

WHAT AMAZON’S COMPETITORS SHOULD BE WORRIED ABOUT

There are plenty of reasons to be concerned about Amazon during the holidays as the company dominates online sales and product search activity. Troublesome, yes, but forward thinking retailers paying attention to the company’s 2017 supply chain moves know even greater challenges loom in 2018. Since the beginning of the year, Amazon has revealed the locations of 25 new U.S. fulfillment centers that once operational will add tremendous distribution capacity to a supply chain that is already highly proficient. The state-of-the-art facilities will give Amazon 25 million more square feet of capacity closer to more shoppers to fulfill orders even faster. And if 25 new fulfillment centers (as of 11/8) weren’t enough, Amazon also announced early in the year that an area near the Cincinnati/Northern Kentucky International Airport would be home to a new air hub. Amazon is constructing a $1.5 billion centralized air hub to accommodate an expanding Prime Air fleet that at last word included 40 dedicated cargo planes leased from two different carriers. Here’s a look at the 2017 fulfillment center projects Amazon has announced to date. Date Location Oct. 31 Macon, Ga. Sept. 28 Euclid, Ohio Sept. 18 Portland, Ore. Sept. 14 Shelby, Mich. Sept. 6 Staten Island, N.Y. Aug. 28 Salem, Ore. Aug. 25 North Randall, Ohio July 27 Romulus, Mich. July 10 Lake Nona, Fla. July 5 Salt Lake City July 12 Thornton, Colo. June 8 North Haven, Conn. June 7 Troutdale, Ore. June 7 Miami June 2 Fresno, Calif. June 1 Jefferson, Ga. April 21 Cranbury, N.J. April 21 Edison, N.J. April 21 Logan Township, N.J. March 29 Katy, Texas March 28 Clear Brook, Va. Jan. 23 Thornton, Colo. Jan. 18 Coppell, Texas Jan. 17 North East, Md. Jan. 4 Jacksonville, Fla. Source: Amazon

Sq. Ft. 1 million 650,000 1 million 1 million 855,000 1 million 1 million 855,000 850,000 855,000 855,000 855,000 855,000 800,000 855,000 850,000 900,000 1 million 900,000 1 million 1 million 1 million 1 million 1.2 million 1 million

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> SOCIAL RESPONSIBILITY

A Platform for PROGRESS SALESFORCE FOUNDER, CHAIRMAN AND CEO MARC BENIOFF, ONE OF SILICON VALLEY’S ORIGINAL DISRUPTORS, HAS UNCONVENTIONAL ADVICE FOR RETAILERS AND CPG COMPANIES ON THEIR TRANSFORMATION JOURNEY. > By Mike Troy

Marc Benioff’s company revolutionized the software industry with a unique business model that integrated philanthropy as a core element. Salesforce was in the cloud before there was a cloud, selling its software via subscription rather than the standard licensed approach. That approach proved hugely popular with customers, but equally distinctive was the creation of the company’s 1-1-1 philanthropy model. Salesforce donates 1% of its product, 1% of its equity and 1% of employees’ time to help nonprofits and educational institutions. The value of those contributions didn’t amount to much 18 years ago when Benioff left Oracle to found Salesforce, but the impact is now huge because Salesforce is on track to log sales of $10.4 billion when its fiscal year ends in January 2018. Salesforce and its philanthropic

Salesforce Founder, Chairman and CEO Marc Benioff at Dreamforce 2017, the world’s largest software conference with 170,000 people in attendance at this year’s event in San Francisco.

Retail Leader.com NOVEMBER/DECEMBER 2017

entities gave $160 million in grants, delivered technology for free or at discounted rates to more than 31,000 nonprofits, and Salesforce employees volunteered more than two million hours. Those numbers will swell next year as the company has already forecast revenues could reach $12.5 billion. The company’s success is rooted in disruption. It was among the first to offer a new technology model in cloud computing and a pay-as-you-go business model now commonly referred to as SaaS, or software as a service. The company also integrated corporate philanthropy into its business model to create a sort of virtuous circle where the better Salesforce performs the greater impact the company could have on improving the state of the world. Benioff shared his perspective on the origins of Salesforce and a world undergoing disruption recently at the Gartner Symposium/ITxpo. Much of what he had to say is applicable to the world of retail and consumer goods, where disruption is around every corner and much of it is enabled by technology companies reshaping shoppers’ expectations. “I don’t think anything can protect you from disruption. If you want to be a great innovator then you have to cultivate a beginner’s mind,” Benioff said, referencing the Buddhist philosophy of freeing one’s mind of preconceptions. “You have to get up every morning, just like I did today, and take a few minutes and do some mindfulness. Just let your mind go. Let everything go. Let your whole world go. Let your present reality go and then let everything get recreated again from the beginning. From the beginning of the beginning. If you can do that then you can continue to innovate.” The beginners’ mind philosophy is something Salesforce takes so seriously that on every floor of the company’s offices there is a space called a mindfulness room, according to Benioff. Whether in the room or elsewhere,

Benioff applies an approach he said Apple Founder Steve Jobs taught him that involves listening and receiving. When he wakes up in the morning, Benioff said he orients himself and gets into a sense of gratitude and foregiveness by saying thanks for the things that he is given every day. “I try to let go of the anxiety and fears and stresses of the world and all the horror that you see on TV. I try to quiet my mind. I try to come all the way down and go deeper and deeper into my heart and let it all go,” Benioff said. “If I can get into that very quiet place, and if I can come down even further, then I can maybe start to hear the future and maybe I can hear the past at the same time. Then if I can start to delineate those two things, I can say, ‘All right, how are we all moving forward together.’” Salesforce is an outspoken proponent of equality and like many tech companies is working Moving forward together is key to to diversify its workforce. Benioff’s view that businesses should be averse venture capital firms were leery of the cloud platform for change that serve stakeholders It is going to computing, software as a service, philanthropy as opposed to simply shareholders, although both take all of us model Benioff was pitching. groups have done exceptionally well with Sales“When I went to every single venture capitalist force. The company has produced tremendous rewith a level of in Silicon Valley they all turned me down. They turns for shareholders, benefitted communities in which it operates and created good paying jobs and said, ‘We don’t believe in this model. We don’t responsibility opportunities for employees who consistently rank think it is a good idea. We don’t see how you can to pick out that compete with Microsoft, Oracle, SAP and other the company as a great place to work. Salesforce companies that don’t even exist today,’” Benioff as a platform for societal progress is working quite one thing that said. “You have to believe in yourself, have clarity well too and that’s important to Benioff who has a we are going to of vision and purpose and soldier on and that’s “we’re all in this together” view of life on Earth. what we did.” “Our political leaders are not going to take do to make the Because the Salesforce approach was unique, one care of us. We’re all going to have to take care of of the things that became clear to Benioff early on ourselves. Everyone is in charge,” Benioff said. “We world better was he needed to improve how he communicated can’t just rely on one president of one country, or and to do it. one governor of one state or one mayor of one city. what the company was doing and its vision. “When I called on venture capitalists and gave The world is changing and changing fast. It is go—Marc Benioff, Salesforce my presentation I thought I was crystal clear. These ing to take all of us with a level of responsibility to Founder, Chairman and CEO are some of the greatest minds in Silicon Valley and pick out that one thing that we are going to do to they were dumbfounded,” Benioff recalled. “What make the world better and to do it. I feel that more I was saying made no sense to them. That’s when I strongly today than ever.” realized just because it is clear to me doesn’t mean It is a message Benioff shares with zeal by encouraging other companies to follow the Salesforce it is clear to everyone else. When you have clarity of the future and you can see what is going to happen, 1-1-1- approach he says was inspired by retired general and former Secretary of State Colin Powell. that’s one thing, but the ability to communicate that and get people to follow you is something else.” Benioff heard Powell speak in the late 1990s prior These days Benioff doesn’t have a problem with to founding Salesforce at an event called the Presidents’ Summit for America’s Future created by people following him. Salesforce holds the holds the world’s largest software conference called former presidents Bill Clinton and George Bush. Dreamforce in San Francisco. The event drew “Colin Powell had a huge impact on my life,” roughly 170,000 people in early November and Benioff said. another 10 million participated online, according By early 1999, Benioff had founded Salesforce to the company. RL after raising money from friends because risk NOVEMBER/DECEMBER 2017 Retail Leader.com

> HUMAN CAPITAL

The Social Solution STARBUCKS LEVERAGES A HOMEGROWN SOCIAL NETWORK TO ENGAGE ITS GLOBAL WORKFORCE OF MORE THAN 300,000 EMPLOYEES IN NEARLY 28,000 STORES. > By Mike Troy

Target refers to its employees as team members, Walmart calls them associates and at the nation’s top automotive retailer they are simply AutoZoners. At Starbucks, employees are partners and those in stores directly serving customers are baristas, the Italian word for a preparer of various coffee drinks. Whatever a retailer chooses to call its employees, one thing all have in common is that hourly employees who directly serve customers have a feel for the pulse of the business that can’t be sensed from a corporate office even when financials are available in near real time. Frequent store visits help and social listening capabilities allow for the early identification of potential problems. However, nothing beats

Starbucks Chief Technology Officer Gerri Martin-Flickinger

Retail Leader.com NOVEMBER/DECEMBER 2017

listening to one’s own employees about what’s working and isn’t working. Listening gets a lot harder though as companies get bigger. The standard layered operational structure required to manage the business creates a wider gap between senior executives and front line employees at a time when their input has never been more important. This challenge is magnified for retailers with a national footprint and more difficult still for international operators. Consider the situation with Starbucks. The company is on track to operate more than 28,000 stores in 2018 with locations in 75 countries. Longer term, it has announced plans to add 12,000 new stores globally, including 3,400 stores in the U.S. by its 2021 fiscal year, a level of growth that requires the addition of 240,000 partners. Staying engaged with such a large workforce in far flung locations has been simplified somewhat by the advent of social media and Starbucks is exploiting social technology with a few wrinkles. The company created what amounts to an internal social network called Workplace that functions as a platform for dialogue and the exchange of ideas, horizontally and vertically within the organization. “Last year, we decided we really wanted to take the power of social collaboration and bring it into Starbucks, as a way to connect stores spread all over with those of us who sit in Seattle, and have a hard time finding a way to be intimate with all of the store teams,” said Gerri Martin-Flickinger, Starbucks Chief Technology Officer. “Workplace has been so successful that even our CEO Kevin Johnson uses it every week for a chat and a video conversation with our partners. And every one of us on the executive team have very, very active groups, and we are engaged consistently and constantly in this format.” More than 80% of Starbucks store managers use Workplace on a weekly basis, according to Martin-Flickinger, which gives the company a way to communicate instantly. That sort of real-time feed back from front

The rollout of Mobile Order & Pay at Starbucks began two years ago, enriching the value proposition of a loyalty program that now includes 13.3 million U.S. members who account for 36% of sales.

line employees is hugely important for agile companies who employ the test, learn, iterate approach to their overall operations, not just technology developments. “One of the things that’s very exciting is (Workplace) has given us the opportunity to have the people who use our technical solutions give us feedback in a more direct way. Almost immediately when we opened up Workplace, we had store managers and partners telling us about the technology in their stores and ideas they had about how we could make it better, or what we could do differently,” Martin-Flickinger said during a keynote presentation at Gartner’s recent Symposium/ ITxpo. “Our technologists have the opportunity to engage in that conversation directly. They can chat back and forth, and the next thing you know, we can add a new feature to the POS to make their life easier. In the past, having that kind of collaboration would be really difficult.” Such feedback is essential given that Starbucks is one of the more active retailers when it comes to layering on new capabilities to its mobile app which then impact usage and workflows. Martin-Flickinger joined Starbucks in November 2015 after previously holding CIO roles at Adobe, VeriSign, Network Associates and McAfee. That was about two months after the company had completed the U.S. rollout of Mobile Order & Pay, functionally integrated into the Starbucks app that lets customers order ahead of visiting a store and integrated with the loyalty program. Mobile Order & Pay was piloted in the Northwest

in December 2014 and the popularity led to a quick rollout and subsequent challenges related to making sure customers drink orders were ready when they arrived. Those kinks have been largely addressed and more recently Starbucks added voice ordering capabilities to the app as an extension of Mobile Order & Pay. Another key way Starbucks is able to leverage the Workplace social platform is by integrating front line workers’ feedback into new store designs. Many Starbucks stores are not very large and workflow considerations can have a huge impact on productivity, especially in high volume locations. Starbucks is now using virtual reality systems in partnership with Autodesk, a provider of 3D architectural software, to imagine store spaces in a totally different way. The system gives designers the ability to observe a store at different times of day, envision customer traffic and even the effect of sunlight. “We can have people move through the space and do various activities, like make a beverage or move furniture and this has now become common practice,” Martin-Flickinger said. “It’s kind of funny because you’ll come into the executive boardroom and people will have virtual reality headgear on and they are walking around and touching. We do this now as we’re getting ready to finalize the build-out of our stores worldwide.” The technology is supposed to improve the store design process and the environment in which partners work. If that proves not to be the case, Starbucks partners are able to use the Workplace platform to share their concerns. RL

“Workplace has been so successful that even our CEO Kevin Johnson uses it every week for a chat and a video conversation with our partners.” —Gerri Martin-Flickinger, Starbucks Chief Technology Officer

NOVEMBER/DECEMBER 2017 Retail Leader.com

Retail Pulse

the heartbeat of the marketplace

Realigning for Growth Vast choices mean that old marketing positioning ideas no longer apply.

merican consumers no longer buy An UnderstAnding of WhAt’s driving ChoiCes based largely on category or brand. The drivers for what they put in To embark on these new opportunities, it is their shopping carts are more critical to acknowledge how consumers’ actual complex, and more personal. Conchoices make old marketing positioning ideas sumers today make purchasing decisions based obsolete. A shift in thinking — and buying beprimarily on immediate or anticipated needs, and haviors — has come about quickly, and has put secondarily on brands that meet those needs at the focus on immediate needs. In just the past price points that feel comfortable to them. decade, consumers’ choices have moved from Repositioning products to compete across catea focus on form and a spotlight on brand to an gories can make a huge impact. Positioning in-line emphasis on the benefits for the buyer. Tom JueTTen, Executive, with today’s trends will open doors to hundreds of Brands can no longer stand for single Innovation Practice Leader, and Shopper millions of dollars in revenue opportunities. Fortu- Consumer product categories. They have to add SKUs Marketing, IRI nately, with only minor tweaks to positioning and to create household-name product lines, but attributes, brands can compete across multiple forms/types, they must do so in a very deliberate and targeted fashion, significantly expanding competitive stances. because shelf space is hard to come by.

Source: IRI Consumer Network™

Retail Leader.com November/December 2017

Data & Insight Provided By

Source: IRI Consumer Network™

Repositioning tRanslates to Revenue, RequiRes Mindset shift

IRI’s research finds that those brands that can reposition and extend reach can significantly boost competitive potential — regularly gaining market share or growing revenue, or both. For example, in beverage, IRI found four opportunity domains, each aligned with distinct types of benefits. In this sector, functional benefits such as nutrition and good taste play better with those buying beverages for “traditional start,” whereas emotional benefits — indulging oneself or savoring the moment with friends — are more important for those buying beverages with “regular and low-calorie refreshment” in mind. With this new framework one brand was able to identify opportunities worth an additional $200 million a year in revenue by enabling

KEY ATTRIBUTES Single-serve packaging Minimal calorie counts High protein Gluten-free

its products to span multiple categories and compete across wider ranges of product types. Still, the mindset shift for the industry is a challenge. New mindsets must allow for a new view of the options, and pricing, messaging and packaging must reflect that to the marketplace. Conventional thinking about categories or types will limit a brand’s scope. It’s time to approach marketing and messaging with this tenet: “Where do I want to go with my brand?” rather than “Where should I place my brand?” Effectively answering these questions requires a new frame of reference: 1. Understand the new, broader competitive marketplace. 2. View the CPG market through the shoppers’ eyes. 3. Optimize programs and budgets to maximize impact across high-value customers. CPG brands risk market decline if they fail to recognize consumers’ actual buying motivations. By restructuring their product positioning and marketing around the benefits and attributes sought by shoppers, brands can more easily straddle multiple categories, extending their appeal to multiple demographics and gaining real competitive advantage as a result. RL November/December 2017 Retail Leader.com

A Letter from the President and CEO

Recasting Disruption As Growth Opportunity

Leslie G. Sarasin

The word disruption is usually defined in the rather negative way of “a disturbance or problem that interrupts an event, activity or process.” If we continue to characterize all things driving change as disruptors, we paint all change in the darker, more negative hues, suggesting that we view it as something we are being thrust into against our will.

requently a new word or phrase creeps into our vocabulary as a shortcut means of characterizing a whole conglomeration of things or summarizing an entire set of experiences. For example, in the 1960’s, “the space race” became a shorthand way of addressing the competition between the U.S. and the U.S.S.R. to put a person into outer space, and the phrase encapsulated all the political, cultural, social and international implications related to such a feat. Usually these shortcut words are a helpful means of cutting to the chase and avoiding unneeded repetition; however, occasionally I fear these abbreviated words carry unintended and undesirable consequences. In the current environment, the conversation at nearly every gathering of food retailers eventually turns to the topic of change — the cost of change, the pace of change, the necessity of change and inevitability of change. Given the circumstances this is understandable, but within these conversations I frequently hear the

Retail Leader.com November/December 2017

word “disruptors,” being used as a bucket term to catch all the elements confronting the food retail industry that compel the tremendous transformation we are experiencing. And this is where I urge us to proceed with caution. The word disruption is usually defined in the rather negative way of “a disturbance or problem that interrupts an event, activity or process.” If we continue to characterize all things driving change as disruptors, we paint all change in the darker, more negative hues, suggesting that we view it as something we are being thrust into against our will. I submit that not all change-compelling elements should be viewed this way and in fact, I think most constitute opportunities to grow and therefore should be considered in a more positive light. For example, I think it’s safe to say that most engaged couples do not describe their intention to marry as ‘our impending life-disruption’ even though the event certainly will change their lives forever. Also, I have yet to receive a birth announcement with the heading, “introducing our new disruptor,” although, now that I’ve suggested it, I’m sure this will come in an attempt to be clever. The point is that sometimes it simply isn’t appropriate to characterize a driver of change as a disruption. FMI’s work to identify the food retail industry’s most compelling emerging issues has focused on five categories of concerns that will

drive change transformation over the next three to five years; these are the new consumer, the new marketplace, artificial intelligence and technology, the workforce, and food production. Like strands on a spider’s web, these five areas are so intricately connected to each other that if one is touched, they all vibrate. While the issues are interconnected, most agree the primary driver of food retail change is the tech savvy consumer who expects a new breed of service, a new quality of convenience and a deeper connection with his/her food. This new consumer is compels retailers into a deeper technological ingenuity and requires new thinking about how the marketplace operates as the hub of food delivery. In turn, this new marketplace will require a new breed of worker, especially as food production becomes more technologically inspired and food logistics are revamped. But again, the first domino whose fall is pushing the others is the emerging new consumerism — the new shopper attitude expecting more information, more curation and more inspiration. In this environ-

ment, I don’t know of a single food retailer who wants to go on record as referring to their customers as disruptors. That would be akin a librarian referring to the people who check out the library books as disruptors because they disturb the order in which he or she has arranged the books. Our customers may be compelling us to grow and change, but doing so doesn’t constitute disruption in our businesses; it’s simply yet another opportunity to meet the needs of the shopper and that’s precisely what successful food retailers do. For this reason, the theme of FMI’s 2018 Midwinter Executive Conference will be An Appetite for Change. When we gather in January in Miami, we will explore — through education channels, casual conversation and collaborative engagement with our trading partners — ways to lean in to the plethora of opportunities to grow. We will challenge the identification of change drivers as disruptors and seek to view them as invitations to succeed in better serving the customer. I hope to see you there in January. FMI

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Food Retail at a Digital Tipping Point By Mark Baum, Chief Collaboration Officer & Senior Vice President, Industry Relations, FMI

ur industry is at a tipping point: We know more shoppers are buying more food and related products across more channels than ever before; center store categories are already making their way online; and food retailers and their suppliers will need to adopt new business models and new technologies to find their way in this new era of ‘connected commerce’. As a leading industry Association, we must help food retailers and their trading partners better understand the dynamics that characterize this marketplace, identify the barriers to overcome and help trading partners build a new model of collaboration. To do this, our organization is currently on a multiyear journey with Nielsen to explore the digitally engaged shopper and to create new business building opportunities for food retailers. Earlier in the years we completed the first phase of this initiative, which identified the “size of the prize,” outlined the emerging needs and expectations of digital consumers/ shoppers, reviewed the readiness of the industry to meet the needs of this digitally engaged shopper and provided retailers a self-diagnostic tool to better understand and rate their businesses against six areas most important to online grocery shoppers. We are conducting in-depth interviews and getting a view from both retailers and manufacturers. We are aggregating and analyzing our research and in 2018, we’ll convert these findings into a framework for a new collaboration model. We recognize that our industry will reach digital maturity and saturation more quickly than other industries that went online earlier, and we’re predicting that the grocery industry will reach $100 billion in online sales by 2025. Digital will reach across age groups and the growth curve will accelerate over the next five years, which will require more experimentation, effectively using stores as laboratories to better understand demand and fulfillment. Per our Digitally Engaged Shopper research, 72 percent of all shoppers are expected to integrate digital purchas-

Retail Leader.com November/December 2017

ing into their overall food shopping rituals by 2025. The second phase of our Digitally Engaged Shopper program, which will be presented at the FMI Midwinter Executive Conference in January 2018, will reveal deeper insights into key challenge areas in the digital collaboration model. The first, master data inaccuracy, is arguably our biggest challenge because as an industry we’ve found some inelegant, inefficient but somewhat effective ways of muscling product onto the shelfs, notwithstanding the inaccuracy and incompleteness of business-to-business product attributes. Consumers won’t be so forgiving. If “digital” does not equal “physical,” consumer frustration and dissatisfaction will have much higher consequences. Other collaboration model challenges that we’ll explore with Nielsen include: suboptimal marketing and promotions; technology enablement; disjointed shopper insights; digital shelf challenges; poor forecasting; and duplicative organizational structure. Given this trajectory, how do you invest and guide your enterprise in all of this? How do you ensure your investment allocation is driven by consumer and shopping needs and you’re investing in what’s important to them and how are you’re acquiring the investment and working capital required to do all these things? Emerging models, technologies and partnerships are key dimensions that will accelerate volume and strategic differentiation. As we have observed in companies throughout the value chain, integration of all these strategies can only be achieved by developing and coordinating these challenge areas by both focusing on the consumer and understanding where food retailer and manufacturer capabilities fall into this spectrum. We also need to be open to the idea of partnerships that cut across channels and technologies, driving joint innovation and profitability. One thing is for certain: this digital momentum is irreversible. Assess yourself and download our free whitepaper: www.FMI.org/DigitalShopper FMI

The Food Retail Industry Speaks and Reveals By: Steve Markenson, Director of Research, Food Marketing Institute

joined FMI as the director of research a few short months ago, and through my first assignment, releasing the 67th edition of The Food Retailing Industry Speaks (Speaks) report, I quickly became immersed in the exciting and evolving food retail world. This survey of industry executives is designed to annually take the pulse of the industry, and having owned my own market research business for almost 20 years, I can certainly relate to the challenges and opportunities navigating a rapidly changing business climate. In my previous career, I fended off non-traditional competitors in our industry, navigated the world of employee health care benefits, recruited and retained the best staff, found new opportunities and ways to do business in a tumultuous industry to ensure my company’s survival, and maintained and grew the business’s customer base in the new world of social media and technology. These environmental inf luencers are not foreign to me and I both empathize and see the possibilities for the industry. Here are some key highlights from the Speaks report based on the Worry Index, where senior leaders in the food retail industry are asked to provide feedback on the positive or negative impact on sales and profits from a list of macro and micro issues: Competition from non-traditional food retailers and online sales are now universal concerns impacting sales and profits. In addition, grocery retailers are now reporting online retailers are having a more tangible impact in areas such as foot traffic, basket size and center store sales. Virtually all retailers are concerned about the impact of interchange fees, cost of health care and upward wage pressures on their bottom lines.

Consumers’ focus on health and wellness and leveraging food to manage and avoid health issues are seen by many grocery retailers as opportunities. In response, most are expecting to increase organic, locally sourced, and health and wellness SKUs over the next two years. In addition, many plan to offer more consumer wellness programs, retail dietitians and nutrition guidance programs. Many grocery retailers are focused on and finding success in using customer service in general and the checkout experience specifically to differentiate themselves from the competition. Community support and ties are also used with success by many retailers to differentiate themselves. Fresh departments such as produce, meat, deli and fresh prepared will see expansion in their space allocation and offerings in the next two years. This is not surprising given the high level of use as differentiators and success of these perimeter departments. The utilization of cost effective social media and technology driven outreach to customers has grown and will likely continue to grow in the coming years. Grocery retailers are currently using multiple social media platforms including Facebook, Instagram and Pinterest and technology driven outreach such as email, apps, mobile marketing ads, and texts. Expectations are for greater use of all of these in the coming years. FMI Learn more and download the full Speaks report at FMI.org/GrocerySpeaks.

November/December 2017 Retail Leader.com

The RL ReseaRch RepoRT How often do you use a mobile device to shop or browse? 55%

Less than once a month

35%

Less than once a week Once a week

10%

When shopping on a mobile device, how often do you make a purchase? 28% 72%

Less than once a month Less than once a week

100% 90 80 70 60 50 40 30 20 10 0

30-39

40-49

50-59

Less than once a month

More than once a week

Less than once a week

Once a day

Once a week

More than once a day

Retail Leader.com November/December 2017

This holiday season promises to be the most digital ever with numerous forecasts again projecting double digit growth, and along with it new challenges and opportunities for retailers and brands. e-commerce continues to dramatically change the retail game, and it’s not slowing down either. Market Track’s Shopper Insight Series survey shows that 86% of consumers did at least the same amount of online shopping this year compared to last year, while almost half (49%) said they did even more in 2017. There’s really no question that the state of modern e-commerce makes purchases both easier and more seamless for shoppers, but survey data suggests that it’s less impactful when it comes to mobile shopping. To put it simply — today’s shoppers are apprehensive when it comes to making purchases on their mobile devices. when asked about their mobile shopping behaviors, only 28% of survey respondents said that they complete purchases more than half of the time. However, when the question is altered to include mobile browsing, we see that attitudes shift. This is evidenced by the fact that 55% of shoppers claim to use their mobile devices to shop or browse at least once a week. when we zoom in to view consumer habits of those aged 21-29, we see that an even higher portion (78%) is viewing mobile buy pages to compare prices or complete a purchase on a weekly basis. This segment is also more prone to use their mobile devices while in-store, with 71% reporting that they check their phones while shopping at brick and mortar locations (compared to 45% across all age groups). The most popular reasons reported for checking phones during shopping trips were 1) checking email for offers/coupons and 2) checking a retailer’s mobile app for deals.

How often do you shop or browse on your mobile device?

21-29

Mobile browsing vs. mobile buying

60 and over

All of this data seems to suggest that shoppers prefer to use their mobile devices as a means for product research before buying either in-store or on their desktops/laptops. They aren’t always looking to buy just because they’re constantly connected. As it stands in 2017, mobile buying may be too convenient for its own good. It does offer unprecedented flexibility and allows shoppers to complete purchases practically anywhere, but that doesn’t appear to be happening on a wide scale. In other words, although shoppers can make an impulse buy while stuck in traffic, that doesn’t mean they will. RL

>> REIMAGINING THE FUTURE Where leaders learn what lies ahead on the path to purchase.

> WHAT’S NEXT...

Digital’s Promise

LEVERAGING DATA AND INSIGHTS TO ACHIEVE PERSONALIZATION AND GROWTH AT KROGER.

As our world continues to be increasingly disconnected and fragmented, technology can act as an enabler. The ability for grocery retail to seamlessly connect the physical store with the digital world is taking us places we’ve never been. The digital channel provides the unprecedented ability to connect with customers, particularly a mass segment of customers who are price-sensitive and budget-conscious; and to anticipate customer needs rather than reacting to them. We are in the unique position to do good for all; making a difference towards better nutrition, better health and the overall well-being of people. Through the totality of the customer experience, a grocery retailer can be a trusted friend to the customer — someone who knows them, understands them and is there to help them save time and money; to provide inspiration; and to be someone that they can count on. Digital is helping us move towards knowing and understanding the customer at an individual level vs. only the household level, and to meet individual needs at scale. Through data and science, we can understand individual and family preferences to provide recipes and meal planning based on taste profiles, behaviors and leverage products that are on special or offer coupons on items needed for those meals — all within a budget. A couple, for example, who both work in retail jobs for the schedule flexibility and to pay the bills, with two school-aged children in Cincinnati, need to be careful about their budget, but also need easy-to-prepare meals that are suited for their kids who have specific tastes. Kroger can provide customized meal solutions by understanding personal preferences, saving them time, money and ultimately help them in providing meals the entire family can enjoy. This level of personalization quickly and easily provides a solid meal plan, a shopping list — helping the customer to save time and to nurture themselves and their families. For the most budget-focused customers, data tells us that they tend to plan intently via multiple channels to ensure they can balance their family’s meal needs within their budget. There’s considerable opportunity to streamline this planning process with digital to help customers be confident they’ll stay on budget on their shopping trip. And for those customers that are considered most at-risk of being food insecure, digital is an innovation lever that can truly make a difference — particularly when aligned with Kroger’s Zero Hunger | Zero Waste plan, with the goal to end hunger in local communities by 2025. This is an effort that the grocery retail industry as a whole can support. Digital personalization, when deployed with purpose, has the opportunity to fundamentally change how customers shop for groceries and feed their families. Digital creates new data streams that can simplify shopper list-making and deepen re-

Retail Leader.com NOVEMBER/DECEMBER 2017

lationships between retailer and customer. Grocery retail must begin to pivot its focus on the > By Stuart Aitken human rather than the product, and towards the impact it can have on individuals and families. This human-centered view considers budgeting and savings, desired health outcomes, and food goals/preferences. There are more forward-thinking aspirational capabilities that may not yet exist, and as an industry we can uncover those through being more in touch with the customer, and by encouraging the customer to share more of what matters to them so that we, in turn, can create something more meaningful for them. While the penetration of e-commerce in grocery retail is a small percentage currently, this will continue to grow and customer needs will fuel new expectations on experiences. Customers are already realizing savings and convenience opportunities through subscription services in replenishment. As more shoppers engage in ClickList pick-up through Kroger for everyday items, the store needs to transform into an inspirational space for meal planning. And grocery retail must understand that digitally-based delivery services should be accessible to all customers, regardless of income. In the current landscape, services like Amazon Prime, InstaCart and others present a barrier to customers who are on limited or fixed incomes, due to their fee structures. A single mother with five children (including one child who is significantly disabled) in Minneapolis, all take a bus to their local grocer because the mother is committed to serving a hot dinner for her family — this is where ClickList, an on-demand, nominal fee-based model, could be incredibly beneficial, and could truly make a difference in this family’s life. Then there is the slice of the U.S population, who work potentially multiple jobs just to make ends meet and have the same aspirations as we all do, but who cannot afford higher point of entry convenience services. The more data and technology advances in grocery retail, the greater the levels of personalization can become. Digital enables both the greater capture of individual consumer needs and the channels to fulfill a truly personal experience that is individualized. As the technology becomes more advanced, and grocery retail capitalizes on these advances to shape more complete experiences for consumers, we can also seek to democratize access to convenience, making lives easier for all customers. RL Stuart Aitken is CEO of 84.51°, the wholly-owned insights and analytics subsidiary of The Kroger Co., where he leads a team of 700 people and also serves on the Kroger Board of Directors.

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