Retail Intimacy 2.0: Tomorrow’s Consumer, Today’s Win

Today, shopper marketing practitioners find themselves in an especially turbulent environment that’s reminiscent of “Project Runway” – “Some days you’re in, and the next day, you’re out.” Companies can no longer tinker around the margins or rely on half-hearted measures to revive a failing business.Just ask the leaders at Shake Shack. In the months following its IPO in early 2015, the trendy restaurant chain was a Wall Street darling. Now, facing slumping sales and relentless competition, Shake Shack CEO Randy Garutti has adopted an aggressive, experimental approach to change and innovation. He refers to the chain’s new cashier-free restaurant location in downtown Manhattan as “the playground” and its employees as “hospitality champs” – apt phrases for a company that is constantly testing and rolling out digital innovations and new menu items because it can ill afford to stand still.This forward-thinking mindset is the exception to the rule, however. “Many companies just aren’t paying close enough attention to shifting trends nor re-engineering themselves to be as nimble as this new world requires,” says Heidi Froseth, EVP, national shopper commerce practice leader, Catapult. “Ultimately there is one strategy that all organizations must have, and that is an e-commerce or v-commerce story that leverages data and insights, and speaks with an authentic voice to create an experience with consumers that embraces their values and desires.”The Constant StudentAny such re-engineering, she adds, must begin with marketers getting a better handle on what’s happening with the consumer: “We must be constant students and follow everything they do, from how they work and shop to how they spend their leisure time exercising, traveling, socializing, reading or watching TV.” This educational process includes looking beyond one’s own category for inspiration and creating ideas on how to capitalize on shifting consumer attitudes and behaviors.Consider, for example, what’s happening in the U.S. fitness market. Consumers are increasingly shunning cookie-cutter gym memberships in favor of new-wave experiences and specialty chains like SoulCycle, CrossFit, Pure Barre and Orangetheory Fitness. High-end boutique fitness studios now make up 35% of the $25.8 billion fitness market, according to a 2016 report from IHRSA – the International Health, Racquet and Sportsclub Association.What’s driving this trend? Odds are you already guessed it: Millennials. Many of these health-conscious young consumers love to work out, but not in the same (read: boring) way that their parents do. They want to be inspired by a group exercise class or participate in the latest indoor/outdoor fitness craze. Millennials don’t want to be tied down by an annual gym membership, and specialty gyms cater to this need with monthly passes or by allowing walk-ins to pay per class. They may also curate their exercise regimens in new ways that spark social sharing. And where Millennials drive a trend, Boomers and Gen Xers often follow.“Millennials came of age in an experienced-based culture, so their expectations with regard to customer experiences are much higher than those of other groups,” says Brian Cohen, EVP, managing director, Catapult. “That’s part of what drives them to constantly try new things.”Always Seeking the NewMillennials’ penchant for new experiences helps explain why so many industries that were growing not too long ago are now in rapid decline. Quick-serve restaurants, for example, have taken a pounding over the last 18 months, with average sales down in the low double digits and stocks down in some cases 30% or more. Names like Chili’s, Applebee’s, TGI Fridays, Buffalo Wild Wings and Ruby Tuesday are not connecting with Millennials, who prefer to cook at home or grab a quick fast-food meal and are averse to what they perceive as a low-quality restaurant chain.When Millennials do decide to dine out, they want to be excited by a new approach that appeals to their handcrafted sensitivities. Consumers ages 18-34 will prioritize experiential factors such as “seeking a trendy place to eat” over menu variety or great-tasting food when selecting a restaurant, according a recent Catapult study on the brand drivers in QSR. Thus, QSR and fast-casual chains should think about ways to heighten the restaurant experience beyond the food. “The back and forth about ‘where to eat’ isn’t a rational or functional conversation,” says Doug Molnar, VP, senior director of planning, Catapult. “There are deeper emotional layers that drive brand selection.”A similar dynamic is playing out across food and beverage categories. Today’s culture rewards brands with a “fresh” or “unique” positioning, so consumers are constantly searching for items such as the latest artisan coffee roaster or imported bourbon. Millennials likewise prefer the experience of drinking beer from a local and/or small-batch brewery to mega-branded beer. Goldman Sachs expects the overall U.S. beer market to decline by 0.7% in 2017.CPG Needs an EKGMany CPG companies are facing a dire sales picture thanks to an ongoing paradigm shift. Growing consumer demand for healthy and fresh foods has decimated sales of everything from soda to soup to cereal, while products like Greek and non-dairy yogurt, naturally flavored and fortified waters, sugar-free teas, coffees and nascent entries in infused juices, kombuchas and dairy alternatives are enjoying tremendous growth. Sales of household cleaning products such as cleansers and fabric softeners are also struggling mightily, as the habits of young consumers drift away from conventional norms toward one-dose pods, wipes and other conveniences. Millennials are not interested in spending their time cleaning or doing laundry, and with clothing material costs continuing to decline, items like T-shirts, socks and underwear can be replaced more readily.When a product becomes a commodity or no longer fits into consumer lifestyles, it is up to the marketer to infuse that product or brand with an added benefit, usage or a whole new look. Starbucks, for instance, has addressed the desire for smaller portion sizes and portable breakfast snacks with Bantam Bagels and sous vide egg bites. Tyson Foods’ Jimmy Dean has introduced a protein-focused, on-the-go breakfast solution with its Simple Scrambles microwavable egg-and-sausage combinations. Innovations such as yogurt and snack “sidecar” compartment packages provide a template for marketers to leverage the benefits of multiple brands, not only in food but also in categories such as vitamins, beauty and household products.Some CPG marketers are taking even bigger risks in repositioning their brands. Georgia-Pacific, for example, tapped into the heightened cultural awareness of female empowerment when it put the first-ever woman on its iconic Brawny paper towels brand as part of an exclusive Walmart program to celebrate Women’s History Month in March. In 2016, Kellogg Co. introduced a cereal cafe in New York’s Time Square, touting an immersive culinary experience in which patrons were charged $7 or more for a dressed-up bowl of cereal. While the jury is still out (Kellogg closed the store but plans to relaunch the concept at a larger location in Manhattan), other CPG marketers can take a cue from the effort. Says Froseth: “In order to revive these distressed categories, marketers must think big and cannot be afraid to fail.”Complacency is also a looming threat for many big-name marketers, as challenger brands are increasingly finding ways to build a better mousetrap. For years, Procter & Gamble’s Gillette touted higher blade counts while nimble rivals such as Dollar Shave Club and Harry’s sold much cheaper versions of comparable products directly to consumers online. As a result, consumers left the brand in droves. From 2010 to 2016, Gillette saw its market share drop from 70% to 54%.Most experts agree that Gillette waited far too long before lowering prices, making improvements to its subscription service model and taking on rivals in its marketing and PR. However, Gillette’s recent introduction of the Treo razor, aimed at the elderly men’s shaving market, is a sign that the company is willing to place a bet in uncharted territory. Treo’s handle includes a scented gel in a design that makes the shaving action smoother while requiring less water – all functions that address the specific needs of caretakers of older men. This largely unaddressed market has tremendous growth potential. The percentage of men age 65 and older will nearly double by 2050, according to the U.S. Census.Data Drives SuccessIn today’s volatile marketplace, there remains at least one constant driver of success: data and technology. “Now that marketers are more accustomed to leveraging big data as part of their insights practice,” Froseth says, “they can focus on understanding the resulting trends, behaviors and opportunities to win with more consumers, more often, and in more ways.”Marketers must always look at category trends through a dual lens, focusing on (1) the shifting needs and desires of consumers, and (2) the myriad ways in which data and technology drive those changes. For example, the fact that Millennials turn up their noses at restaurant quality isn’t the only problem facing QSR chains. According to a recent report by Morgan Stanley, some 40% of total restaurant sales (or $220 billion) may be up for grabs by 2020 due to a surge in digital food delivery. Fast-food restaurants like McDonald’s and Domino’s Pizza, along with fast-casual chains like Panera, are succeeding in part by expanding mobile/kiosk ordering and pick-up services and meeting demand for healthier, cleaner options with higher-quality food.Conversely, while Wall Street may have concluded that meal kits are passe and that Blue Apron’s days are numbered (given that Amazon has lent Whole Foods its superior data/technology machine), consumers haven’t had their final say. Walmart, for example, has begun testing meal kit opportunities targeting “urban connected” consumers through niche providers such as Terra’s Kitchen. “Brands have an opportunity to lead the discussion with Walmart by providing solutions that leverage various parts of the store and focus on quick, satisfying, affordable and healthy everyday meals,” says Catapult’s Scott Caldwell, SVP, Walmart, Sam’s Club and club team leader.All of these examples speak to an escalation of risks and rewards that are challenging every single company and brand. “Many experts will tell you to ‘embrace’ change, be flexible and so on,” says Froseth. “But in order to lead and be successful, marketers must start thinking like a futurist. That means not only anticipating change and opportunities, but creating them – acting, in effect, like a small-batch manufacturer. Take more risk than usual, constantly test and learn, and go deeper into shopper needs, desires and motivations. That’s the best way forward in this highly challenging yet very exciting time.”The Year Ahead in Retail: A Commerce RoundtableThe senior leaders of Catapult’s “shopper commerce” practice team dissect the past year’s major retail developments and preview the year ahead. Below is an edited version of the conversation. Participants: Steve Abdo, SVP, grocery and value channel leader; Scott Caldwell, SVP, Walmart, Sam’s Club and club team leader; Angela Edwards, VP, e-commerce practice leader; and DyShaun Muhammad, SVP, Target and drug team leader.It has been a tough year for traditional mass retailers. Is it possible that all the doom and gloom has been overdone?Caldwell: I believe it has been overhyped, especially as it has spelled doom for Walmart. Of the $800 billion in U.S. grocery sales, Walmart accounts for $200 billion (25%) while Amazon plus Whole Foods accounts for only $20 billion (2.5%). Grocery is the key trip driver for Walmart, and continued increases in volume and share are currently mitigating e-commerce gains by Amazon and online competitors.Muhammad: This channel has been facing headwinds for several years. That said, mass retailers have been making changes to better connect with their core shoppers, placing greater focus on their key categories and improving the online/offline experience to better meet shopper expectations. I expect we’ll start to see the benefits of those long-term investments, but it’s a gradual and ongoing evolution.Is it too early to predict the long-term impact of Amazon’s buyout of Whole Foods Market on Walmart and Target?Caldwell: Walmart expects to increase e-commerce sales by 40% in fiscal year 2019. That’s a huge leap. It continues to aggressively test and roll out brick-and-click innovations, such as in-home delivery, that will help counter the advantages that Amazon enjoys in terms of price perceptions, quality and experience.Abdo: It doesn’t surprise me that Walmart continues to have strong sales. They are ahead of the curve with moves like the acquisition of Jet.com. I do think Target will have a tougher road against Amazon. They are still behind in their grocery offering and don’t truly have a differentiated omni-commerce strategy, especially versus Walmart and Amazon. This could create an unrelenting negative slide for them.What other changes in the retail landscape do you expect in 2018?Abdo: The big will get bigger – maybe not in store count, but in growth, new opportunities and what they offer to shoppers. Choice and speed will be paramount. Traditional department stores will continue to suffer, unless they can find a way to differentiate and deliver a better holistic experience. Nordstrom’s new service-only concept is interesting. I’m not sure it’s exactly what shoppers want, but that’s the level of experimentation the channel sorely needs.Muhammad: I think the extensive delays and the regulatory collapse of the Rite-Aid/Walgreens merger will put a damper on any new big acquisitions within that channel. I could see a potential cross-channel merger where a major retailer combines with a drug player to do their own Amazon/Whole Foods play to own more corners. This contradicts the trend of chain retailers trying to relieve themselves of real estate burdens, but the corner market is becoming even more relevant as shoppers now value time and convenience above all else.What else should we be watching for?Muhammad: Drug is competing with specialty beauty, c-stores and small-format grocery. Both Walgreens and CVS are rapidly evolving with dynamic mobile-first loyalty platforms and engaging in-store activations. Chains like Dollar General are expanding rapidly looking to nail in loyalty via promotions and mobile-enabled tools. With the growth in a market that is lower-income and more time-pressed than ever, I think we will see a lot more innovation in both drug and dollar stores.Do you think that behavioral barriers, particularly relating to produce and fresh foods, will limit interest in onlinegrocery shopping?Edwards: The online grocery experience will improve as retailers offer more options like expanded assortment, click-and-collect and tighter delivery windows. Amazon’s expansion into the sector will accelerate that trend. With the purchase of Whole Foods, Amazon now has access to 430 potential new grocery delivery markets in some of the most affluent neighborhoods in the U.S. Count on Amazon to figure out how to leverage data and utilize their new and expanded footprint to enhance the online grocery experience. And expect others to follow in making technological and experiential improvements that expand the overall market.Caldwell: To put this in some perspective, online grocery shopping accounts for about 5% of the total food and beverage sales in the U.S. A recent Gallup survey showed that more than eight in 10 consumers have never tried online grocery delivery or pickup due to issues related to access, interface challenges, or awareness. That said, there is huge growth potential in this market. The retailer that can crack the seal in terms of trust, ease and convenience can profit greatly.What do you think of Amazon’s promotions at Whole Foods stores so far?Edwards: Amazon has made some very strategic price cuts on traffic-driving items, mainly around the perimeter with items such as milk, bananas and the Millennial favorite, avocados. Amazon will continue to mine data to determine how best to drive traffic in-store, and these price reductions will be one of the levers that they pull. Expect inventory levels to drop and assortment to evolve as the company uses Whole Foods outlets to sell more Amazon merchandise.Abdo: Amazon will have to work hard to build the type of loyalty that retailers like Kroger have built with their shoppers. They will also have to begin to provide services that they don’t provide today. For example, fuel rewards continue to be at the top of the list as to why consumers shop at a certain retailer.What is your advice to CPG companies going forward?Muhammad: CPG companies need to invest much more heavily in experimentation and focus on the retailer and shopper experience. By paying attention to technology trends that are enabling differentiation via services and experience, even in mundane categories, marketers can stay ahead of the curve. For example, Georgia-Pacific is evolving toilet paper into premium “systems” via efforts like their Hyba personal cleansing launch on Amazon.com. These sorts of channel-specific approaches will be key to CPGs leading into the next era of retail.

Retail Intimacy 2.0: Tomorrow’s Consumer, Today’s Win

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