For a long time, it seemed like the challenges facing other sectors of retail would not impact grocery. After all, the thinking went, online is what other retailers are facing. Look at all those food delivery services that failed (except Peapod, of course). Americans just don’t buy food online.

How It’s Changing

But with recent announcements like Amazon’s purchase of Whole Foods and Walmart teaming up with Google for AI personal assistant ordering, it’s clear that grocery retailing is going to be changing along with the rest of the retail sector. Here are some of the key changes:

  • Online Ordering and Delivery. Thanks in part to mobile technology, which provided the last link of convenience to meet consumer needs, more consumers are ordering groceries online. Whether that is dinner from the online meal-in-a-box company or ingredients from Amazon, online ordering is quite acceptable to most consumers, and mainstream for Millennials. And delivery and pick-up options abound: get it delivered, pick it up from the store, or pick it up somewhere else. Amazon is said to be considering placing “lockers” in Whole Foods stores where customers could pick up (and return!) Amazon orders of all types in addition to their groceries.
  • In-store Experience. Grocery retailers will need to provide a superior in-store experience to compete with online shopping and delivery. More focus on fresh food, clean stores, and crisp graphics will enhance the shopper experience.
  • Additional Price Pressure. With Amazon immediately lowering prices at Whole Foods on selected items such as eggs, bananas, and rotisserie chicken, other grocery stores will feel the pressure. If they are to compete with Whole Foods, they may have to cut into margins. German grocers Aldi and Lidl are targeting the U.S. with their low-price strategy that competes with Walmart for the budget-conscious shopper.
  • Consolidation and Proliferation. Somewhat amazingly, there are many independent and regional grocers still operating – about 37% of all grocery retailers according to Euromonitor. With increased price competition, many of these grocers will fall victim to industry consolidation, and some consumers will lose their favorite places to shop. On the other hand, because food was seen previously as a “safe” or online-resistant retail offering, more retailers have begun offering food products than ever before. Retailers as varied as Dollar General and CVS (both tied to brick and mortar distribution) are expanding their food offerings, hoping the combination with other consumer products will increase traffic and sales.

How to Flourish in the New Grocery Retail Environment

All these changes are putting a lot of pressure on food retailers. Stores will need to employ basic, but smart marketing and brand strategy to compete and succeed. Stores that don’t have a specific point of difference that fulfills a need for today’s shopper will be at greatest risk of losing their customers to online competitors. These points of difference include:

  • Price-value or low-cost provider: There will always be a market for this; oftentimes the challenge is executing profitably
  • Fresh, healthy, wholesome: Aligns well with today’s increasingly health conscious shoppers
  • One-stop shop: Convenience, but only the largest players can truly deliver on this promise
  • Fun experience while in store/destination: Stores can be entertaining (like Stew Leonard’s) and can turn the shopping trip into an event. Can also incorporate the opportunity for shoppers to try new brands and products, which for some, is fun.

Smart food and beverage manufacturers will understand the pressures their customers are facing and work to help them succeed:

  1. Get creative about distribution. In addition to traditional grocers, could you partner with other companies – like Blue Apron or HelloFresh – to deliver products? Would they like a soft drink with their HelloFresh dinner? Do they need shampoo or toilet paper?
  2. Contribute to the in-store experience. Many chains are opening stores or refurbishing their current stores to improve the shopper experience. How can you help enhance that investment? How do your products stack up visually? Does your packaging add or detract from the visual experience?

Understand and leverage how people shop. What impact does it have on your product and category if consumers add an extra shopping trip each week? Should you consider changing the size of your product or the type of packaging? Think about how the shopper is changing – and appeal directly to them.

Jack Welch once said, “If the rate of change on the outside exceeds the rate of change on the inside, the end is near.” Well, the rate of change in the grocery retail industry is increasing rapidly. However, instead of disaster, we believe this brings exceptional opportunities for manufacturers who embrace this change.