Groceries will turn into a battlefield


Traditional stores have been hit hard in the past decade by structural changes in consumer behaviour and the fast rise of internet sales. Book and electronics stores were among the first victims, soon followed by so many shoe and clothing shops. And the end is not yet in sight, new closures and more bankruptcies will no doubt soon follow. With giants like Amazon, Google, DHL and 'who-knows-who' entering the grocery market the next battlefield in retail is in the making. The most relevant strategic question to be asked by any supermarket chain and supplier right now is not if major change will happen but what will happen when it happens and who will be among the winners and the losers.


Romantic or high tech?

There seem to be as many opinions about the future of the grocery market as there are experts although some views are clearly more prominent amongst them than others. While for many experts, online players like Amazon will soon dominate, others consider online grocery delivery as "the emperor's new clothes". They mention the added cost for buying the same stuff, point to the fact that budget supermarkets currently grow twice as fast as the online grocery business or stress the important social roles shopping still plays in the life of people. For these reasons there will always be a key role for your local supermarket, small or large.


Opinions start to differ when winning formulas are discussed widely ranging from small neighbourhood stores (which are among the fastest growing in many countries right now), lean & mean efficient chains of the like of Aldi, Lidl or Trader Joe's, or megastores at the outskirts of cities that sell more than its visitors can imagine. New kids on the block (or, better phrased, 'blogs') include high-tech stores (like the concepts store recently created by Coop Italy in the photo above) that offer all the information you want and romantic, fresh food markets that offer a range of smoothies and even cook your dinner on the spot with the ingredients you just bought.


Online winners?

Advocates of online stores, on the other hand, stress that the growth of some off-line market segments is just a temporary thing and qualify the way groceries are currently organised as highly inefficient and way too laborious. Once groceries arrive at the supermarket, they are taken out of boxes and put into racks by staff, then hand-picked by shoppers and dropped in their shopping cart to be taken out again at the checkout (unless they are so lucky to use a scanner of course), put into the boot of their car and, once at home, stored in a proper place until they need it.


The online camp stresses that it is a lot more efficient to collect groceries in an fully automated warehouse and bring it to your doorstep with smart, electric cars exactly at the moment you arrive home from work or one of your weekly jogging sessions. Add personal monitoring and extensive use of big data and allow for the consultation of your refrigerator and diary and a shopping list has become redundant: your all-inclusive grocery service knows what you want to eat, when you want to have it at and how you want it to be served.


Inevitable surprises

As with the future of any sector, the issue is not whether the supermarkets as we currently know them will fully disappear or stil be around for the years or decades te come. The key strategic question is in what ways the grocery business may change as a result of online deliveries and a host of other forces and influences. The key mistake supermarket chains should definitely avoid is to bet on a horse from the past or the present that will no longer be needed in the (near) future. The history of the groceries is paved with stores that held on to old assets and mental legacies for too long. No doubt, the way we will shop for our groceries will change. Given recent market developments and discussions, it will not be one or two concepts or channels that dominate the grocery market in the future, on. the contrary.


A broad range of different scenarios and developments that may in some form or the other manifest themselves in the next decade is possible (including many of the "I don't see that happen" kind). One of them so clearly stands out and seems so obvious that it may well be one of those inevitable surprises that will become only famous after the fact ("we could have known that, why didn't we and they did?"). Radical change especially comes as a surprise when there is still a really dominant business model or 'industry recipe' in the market on how a successful grocery company should be run. Even though insiders may argue that there is currently so much variety in the grocery business (in the same way as they think their children look pretty different), any supermarket basically looks like an IKEA store: customers pick groceries themselves and 'assemble' the final product at home.


Variety is knocking on the door

The past few decades, market consolidation has been the name of the competitive game in the grocery market in order to benefit from economies of scale (definitely in purchasing power). Over the years, many brand names have been vanished and the number of supermarket stores has been reduced substantially. All over the world, supermarkets now belong to the largest companies in their country or region. Whereas traditional market theory would indicate that the industry has for that reason entered its end game, the opposite is true. Given the multitude and diversity of new players that are knocking on the door of grocery markets, it is instead the start of an entirely, new competitive game.


The one inevitable surprise that stands out is a rapid and unprecedented rise in variety in the grocery market in every possible respect. In players, store concepts, distribution channels, business models, local presence, scale and scope, assortment, service, price range and probably a few more. Next to familiar online giants and logistics companies, a broad range of disruptive startups will attack the grocery market and is already doing so. Still unknown or not even existing today, some of them will quickly grow into the market leaders of the future. It will take years and more before the next generation dominant models and industry recipes will crystallise out. As a result, grocery markets in general and supermarket chains in particular will experience major strategic change and uncertainty.


Strengths or legacies?

As market change always creates business opportunities, the grocery market will attract many new players and investors to compete with the leaders of today . As the current winners are so much focused on further optimising their current success formulas and recipes, they are, by and large, unaware that their strengths, stores and competences, however important today, may quickly turn into the legacies of tomorrow. Scenario thinking is one of the best instruments available to explore and experience possible change and to test the future robustness and agility of current strategies and business models. If done well (and thinking is not outsourced), it will challenge strategic assumptions, stretch imagination and widen the view on early signs of change. It is both a 'no-regrets-move' when you are fully sure as wel as when you are not sure at all how the grocery market will look like in the coming decade.



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