Home delivery, supply chain digitalization, and the need to develop strategies for dealing with inflation will create growing challenges for the grocery retail business in 2022, according to Bill Bishop, the chief architect of the grocery consulting and high tech services firm Brick Meets Click.
“Over the last several years, a growing number of companies have been applying digital tools in creative ways that allow them to unlock exponential growth – and as they grow faster than historically, they are also creating challenges that many are not prepared to address or overcome,” he observes.
“The result is bigger performance gaps than we’ve seen in the past, especially for those who don’t challenge the status quo by interrogating their own assumptions and business models.”
Among the top trends this year include digitalization emerging as a more important source of competitive advantage, Bishop points out.
Machine learning makes it easier to analyze data, and the cloud makes communicating it faster and more efficient than ever before. “Companies that have digitized their business can be more agile and keep up with the changing needs of customers – and the competition,” he says.
More companies have discovered their growth is driven by hyper localization. They are looking for white space to grow, and digital tools make it easier to identify small, underserved pockets of demand.
Bishop tells grocers, “It’s time to take a closer look at what your customers are looking for but not finding, and to evaluate whether that under-served demand is a profitable growth opportunity.”
Consumer Packaged Goods producers can be expected to grow the brands and products they sell exclusively to one retailer. They need to get more merchandising attention for product launches and leverage the influence of social media within the retailer’s ecosystem, he says.
“The larger retail chains will have a temporary competitive advantage from being the only place customers can buy these exclusive products,” Bishop predicts. “Other retailers need to look for similar opportunities to offset that advantage.”
He also stresses that inventory optimization will become “mission critical.” Spurring this will be inflation, which is making it more profitable to increase inventory turnover.
“What it means: Increased pressure for longer payment terms and greater focus on innovative ways to increase inventory turns,” Bishop adds.
Grocery delivery also is expected to become more affordable. He says this is happening because of an increase in the number of lower-cost, autonomous vehicle options suited to this application being tested and rolled out in various markets.
“Offering grocery delivery to customers in a store’s trading area becomes more practical for any retailer who wants to use this to generate incremental sales,” Bishop asserts.
In addition, he predicts that grocery pickup options will expand with new models. This is the result of the growing popularity of pickup prompting innovation from companies around the world.
Automated systems also are forecast to handle more staging and transfer of completed online orders, and in some instances be done remotely from the store.
In the end, he believes the biggest driver will be changes in pricing strategy and other business practices stemming from persisting inflation. The growth of hard discounters will disrupt more market areas. Aldi is seen reaching a total of 2,500 stores year’s end, and Lidl and Save-a-Lot are implementing new growth strategies.
“As hard discounters establish stronger positions in a growing number of markets, value-oriented shoppers will have even more choices about where to buy low-priced groceries,” Bishop says.