Boardroom is comprised of original perspectives from leading experts in food retail on a selection of the most critical issues executives must confront in boardrooms across the country and around the world. We are excited to share a series of Q&As with various authors from papers included in the journal that will give an expanded perspective on the key topics.
In the third part of our series, I spoke with David Waller, Oliver Wyman Retail Practice Partner, and Jacqui Martinez, Oliver Wyman Retail Practice Partner, on potential growth strategies for retailers and the strategies that will allow them to survive in an increasingly competitive and changing environment.
Can you explain “click-and-collect” and what influences its adoption in different countries and regions?
Chris Baker: In its most basic form, click-and-collect is the idea of having somebody assemble your shopping basket for you rather than doing it yourself in the store. Then, you drive through a kiosk or to the front of a store and either pick it up or have it dropped off in the trunk of your car. The history here is pretty interesting. In France, in order to find other ways to serve different shopping missions in a constrained real estate and challenging regulatory environment, French retailers began rolling out the click-and-collect concept in early 2000s. Different French retailers played with the format in the early years. Once they figured out that customers didn’t want to actually get out of their car to collect the groceries, it really took off and became known as “Drive”. Click-and-collect proceeded to explode in France and since then it has spread quickly in the UK and is beginning to gain traction in the US.
In terms of what influences adoption of the format, our research shows that click-and-collect is family friendly. When we look at who uses the service in the US by family sizes and income levels, it is highly skewed towards younger families who enjoy not having to get out of the car. As many retailers are learning about click-and-collect, they are beginning to tailor assortments to family-friendly and child-friendly products, particularly if they are going to limit their assortment of the offering, which many of them do.
How does omnichannel retail affect the food industry? And what steps can retailers take to get out in front of it?
Martinez: Omnichannel is one of a number of threats that are confronting traditional grocers today. All of these threats could chip away at the basket size and trip frequency of their current customers. It doesn’t take a lot of that chipping away to cause a pretty substantial decrease in the profitability of individual stores and eventually the overall company. What we see happening is that the retailers caught in the middle, who have relied over time on convenience as their most powerful competitive weapon, now have to find other ways to compete. On the one hand, you’ll see that low cost value formats will continue to win because online grocery is never going to be the most cost-effective way to get groceries.
On the other hand, you’ll see stores that offer an experience for customers continue to win. You’ve seen that in other segments impacted by the internet, like the Apple store skyrocketing when other electronic stores are going out of business. That’s because they offer customers more than products – they let them touch, feel, and experience the product while being served by engaging, knowledgeable associates.
For retailers who increasingly find themselves stuck in the middle, we recommend two things. First, make sure that value isn’t an obstacle for customers. Second, make sure you give your customers a reason to come into your store besides just being around the corner. That means things like a really outstanding fresh offering or services they can’t find elsewhere.
Baker: In a world where food retail sales forecasts are basically flat, the fact that omnichannel adds a lot of complexity and cost to the system makes it an especially challenging strategic issue to tackle. I think many retailers feel like they are in a bit of squeeze right now. The answer for each retailer lies in figuring out what really matters to their customers and intelligently and incrementally investing around those offers.
Where do you see Omnichannel evolving in the future, especially in the US?
Martinez: What we have been looking at is determining the most efficient end state for grocery retail both online and offline in the US. When we look at the population densities we have – it’s hard to imagine that the most efficient end state is each individual grocer launching their own home delivery option. However, when we look at third party delivery options, the efficiency of actually choosing the order within the store is really poor or well below what individual retailers could accomplish. So there is a really compelling case to be made that the most efficient answer to online is orders that are picked up in store for click-and-collect. For most customers, that meets their needs. For the subset of customers who still want home delivery, a crowd sourced or 3PL solution has a better chance of getting the needed scale and can work in conjunction with click and collect offerings. By separating fulfilment from delivery you can create scale in delivery and efficiency in fulfillment .
Baker: I would also add that given how large and diverse the US is in many different ways – the most important of which here is population density – we are going to end up with a patchwork of retail channel options. This is quite different from France or UK where the level of variation is much lower. So more high density population areas will support efficient home delivery options and click-and-collect models won’t make sense because of real estate and transportation challenges. On the other extreme, even a basic click-and-collect offering in addition to traditional stores may not be supported in a very rural market. Then in the middle, where most US markets sit, there will be a mix of flavors of home delivery, click-and-collect and stores.
Thank you both for your time. Are there any other points readers should take away from Boardroom or next steps they should take?
Baker: My closing thoughts are that this is a complex issue and there isn’t one answer in the US. Every retailer looking at this should strive to understand who they are serving or trying to serve in the different markets they operate in and map back to what the right mix of omnichannel offers should be. It’s important to work from the customer back in how you think about this; otherwise, you can spend a lot of money and time on building capabilities that don’t really matter to your customers! The next step is to work hard to test and learn to fine tune the offer and the operating model that delivers it.
Martinez: And the other thing I would say is that for many retailers this may seem so far from the base business, which is already a struggle today, and seems like something they can’t afford to think about. What I would say is that all of the things they are doing to fight the day-to-day battles are really important, and they can’t afford to lose focus on those things, but bets in this area don’t have to be big or all-consuming. If you wait until you’ve sorted out all of the base business problems, it will be too late. First movers gain much more market share from competitors than they lose from their own store, which is not true for late movers.
*This interview is the second of a six-part Q&A series between FMI executives and Oliver Wyman partners on the inaugural issue of our joint journal Boardroom
By Mark Baum, SVP of Industry Relations and Chief Collaboration Officer, Food Marketing Institute