The shift to digital is accelerating at retail

by Keith Nunes
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Keith Nunes

When Wal-Mart Stores, Inc. began selling fresh and shelf-stable foods, the gallows humor within supermarket circles at the time held that within 10 years there would be only one retail chain selling food. While meant in jest, the comment was tinged with the reality of what Wal-Mart’s scale and effectiveness did to competitors in other retail categories.

Yet it should not be lost on anyone that rather than moving to consolidation, the food retail market in many ways has never been more diverse than it is today. The proliferation of various approaches toward retailing food may be helpful to consider as food manufacturers look at the impact of e-commerce on their customers’ and their own business.

Many retail chains, both large and small, in conjunction with their suppliers have done brilliant work in differentiating their offerings and building a base of loyal customers. That loyalty has led to consumers being more willing to shop multiple outlets to buy the products they perceive to meet their specific needs.

Wal-Mart on-line shopping
As the role of e-commerce grows in food retailing, loyalty is going to be put to the test.

Yet it is an understatement to say that as the role of e-commerce grows in food retailing, that loyalty is going to be put to the test. Research from the Food Marketing Institute shows that within the next decade on-line food shopping will reach maturation in the United States, faster than many other industries that have been affected by on-line sales.

Retailers also covet e-commerce shoppers because, at least as of today, they tend to be less price sensitive, spending more than in-store only shoppers. E-commerce shoppers are also desirable because they tend to stock up, placing two large orders per month on average, with items in their “baskets” often double or even triple what is typically generated from an instore sale.

Data from the Food Marketing Institute show the center of the store will shift on-line faster than other departments. This trend is already happening and may be seen in the comments of publicly traded companies competing in those categories. The growing impact of unmeasured channels is a direct result of some shoppers embracing some form of e-commerce.

The Food Marketing Institute study, which was conducted in conjunction with the market research firm Nielsen, estimates that in the current climate of technology adoption and evolution, consumer spend on on-line grocery shopping may reach $100 billion by 2015. To put that into context, the organization says that is the equivalent of 3,900 supermarkets, based on store volume.

The obvious question is what will become of those stores? Will they evolve into a more focused format or go away? It remains to be seen, but past experience indicates the adaptability of retailers to changing market conditions should not be underestimated.

When the conversation shifts to on-line food shopping, two names come up repeatedly — Amazon and Wal-Mart. Amazon was created and is built around the concept of e-commerce. Wal-Mart sees e-commerce as the next stage of retailing and intends to become a potent competitor in the category.

It may appear as if current brick-and-mortar retailers will be at a disadvantage as more consumers embrace e-commerce. But most retailers already are experimenting with digital formats of their own, and just as retailers and their suppliers adapted to the incursion of Wal-Mart into food retailing in the past, so may they adapt to these new challenges.

 

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