Armed with new definitions of convenience and value, today's consumers are increasingly brand agnostic and no longer have the same loyalty for heritage brands that previous generations did. New and emerging brands are taking advantage of this trend because the barriers to entry aren’t as high. Look at what's happening across personal care with cosmetics brands or men’s shaving brands that show up online without any retail presence and gain a following on social media. Suddenly, retailers are chasing them to get them on their shelves. This type of disruption is happening to traditional brands across all consumer and retail sectors—not just grocery.
Instead of buying customer loyalty, emerging brands focus on innovating to meet customer expectations in terms of value, price, experience and convenience—and disrupting antiquated business models along the way. Consequently, the market is more fragmented between growth at the high end, the narrow focus of specialty retailers able to deliver incredible value to niche segments, and the explosive growth at the low end with hard discounters and dollar. Everyone left in the middle is trying to figure out how to redefine themselves to stay competitive and relevant.
There's no one factor shifting the market on its own. We're seeing the cumulative effect of seven key trends reshaping the retail landscape:
- Consumers are redefining convenience. Convenience historically meant everything under one roof, but that’s changing significantly in a fragmented market that operates across digital and physical channels. Consumers like edited, curated and personalized offerings, as well as retail experiences they can get in and out of much faster.
- Value and cost. Consumers either expect a high-value experience or a low-cost alternative. You see very specialized players (e.g., Whole Foods, Eataly) and also low-cost discounters (e.g., Aldi, Amazon) winning market share. Those in middle are caught between a rock and hard space.
- The consumer is always connected. Consumers expect a seamless experience across all channels, regardless of how they chose to engage. Grocery has been the slowest to adapt here, but every category is making the shift online.
- Personalization. As consumers engage with brands digitally and through mobile devices, they expect a curated and personalized experience.
- Health and wellness. Most of the growth in consumer products is happening in new, small, often health and wellness-oriented brands, as opposed to the big traditional brands. The large consumer products companies are looking to acquisitions of emerging brands in order to strengthen their innovation pipelines.
- Lack of brand loyalty. Historically, consumers would buy and remain loyal to a few brands. Today, consumers look for new things. They like finding niche, new to market brands and being early adopters.
- Education and influencers. Historically, brands controlled what people knew. Today, we learn through social media, YouTube, celebrities and other influencers. Consumer knowledge is no longer controlled by the marketing spend of major consumer products companies or retailers. In many cases, they have lost control over the narrative surrounding their own brands.
Last summer’s Amazon/Whole Foods deal found every other retailer's three-year strategy tossed out the window. In addition, Lidl’s U.S. entry pushed Aldi to increase its investment in renovations and expansions to its store base. The hard discount sector is having its day in the sun and the full impact is yet to come. In the meantime, both retailers and suppliers are trying desperately to shift from defense to offense and get ahead of changing consumer demand and agile competitors while positioning themselves in a more digital-forward way to stay relevant.
Millennials are more than twice as likely as boomers to shop online in a given week and nearly eight times as likely to shop on their mobile devices. They're looking for convenience and a personalized experience across channels, which could mean purchasing their groceries online and picking them up in the store on the way home from work or taste testing a new product in the store and then ordering it from their phone to show up on their doorstep tomorrow.
Winning retailers are increasingly investing in fresh foods and innovative private label.
Bain research shows that on average, shoppers of all types have a favorable perception of private labels. This is a major change in consumer preference over the past 10 years. Today, 85% of all shoppers are open to private label products—with more than half believing private labels are as good as, or even better, than bigger traditional brands. Costco, Trader Joe’s and Aldi have had a big hand in changing consumers’ thinking about private label.
Continuous innovation for retailers and brands is key. A few specific things both can do to stay ahead include:
- Doing due diligence on current trends. Ensure you know how much shelf space is at stake, and how much incremental consumer spending is on the table, before you invest.
- Get clear on where you compete. Are you going for the high-end specialty market or a deep discounter? Those in between are most at risk.
- Redesign your capabilities to meet customers in the “digical” market, offering a mix of physical and digital purchasing and delivery channels.
- Build stronger and simpler portfolios. Focus on your top-selling products and innovate to acquire smaller brands to compete with emerging brands.
- Zero-base your budgeting to free up resources that can be invested in areas of growth.
The channel shifts and consumer trends that are upending the grocery landscape could have dire consequences for those who are unprepared. The best companies will control their own destiny and sustain their performance by choosing the right mix of traditional and new channels and thoughtfully reallocating resources to build the capabilities and portfolios required to win.