The Grocery Wars: How to build immunity against low-cost competitors
The grocery wars have been on for some time, but things are heating up. Last week, discount grocer Aldi announced plans to open 900 additional stores in the U.S., while low-cost grocery store Lidl made its stateside debut. Highlighting the damage this could inflict on incumbent grocery players, a recent report from Oliver Wyman shows that 39% of respondents, all based in the geographies where Lidl is opening its first U.S. stores, said they would shop at Lidl once a week or more in the future — even though they have never before stepped into one of their stores.
Aldi's expansion and the entrance of Lidl into the U.S. market pose a threat not only to traditional grocers, but other retailers with grocery offerings, including big-box retailers and convenience stores. While these players have already been eating into the market share of traditional grocery stores, offering shoppers the opportunity to split their trips and pick up food essentials while shopping for other items, even they are not safe from the tantalizingly low prices of the encroaching discount grocers.
Many grocers have been proactively refining their business strategies for some time in order to remain competitive. It is more important now than ever that they continue to innovate, trying out new programs on a smaller scale and investing in those that prove to be the most successful.
So how can current food retailers build immunity against these new, low-cost grocery players? As incumbent grocery chains brainstorm new ideas across their businesses, here are three key strategies they can leverage now to help strengthen their defenses against these latest competitive incursions:
• Quality private labels
While many grocers – and other retailers that sell food, like Amazon– have developed their own private label offerings, a major draw of Aldi and Lidl is their wide of assortment of affordable, private label products. As other grocery players roll out private label offerings of their own, it is no longer enough to ensure they are low cost. They must invest in bolstering their quality and taste, particularly as a response to consumer demand for healthier and fresher food options.
One approach grocers can take to ensure they deliver the right private label assortment to the right markets and consumers is to trial variations of different offerings in different stores.
For example, consider a grocer that wanted to launch a line of private label organic offerings. By deploying these items in some stores and not others, the chain could determine which items sell best, where, and roll them out only in the stores where they will be most profitable. This approach would enable the grocer to invest intelligently, and only in the high-quality private label items that are most in-demand, and avoid expensive new product introductions that could fail.
• Enhanced delivery options
With increased competition from online food retailers and third party grocery delivery services, leading traditional grocers across the industry have already been actively establishing or enhancing their delivery programs. This response is especially valuable as it allows grocers to position themselves closer to the consumer by enabling them to stock up on groceries without even leaving their homes.
The key to effectively leveraging a delivery program as a differentiator against Aldi and Lidl involves two key considerations: First, carefully managing delivery fees; and second, rolling out the program in territories where it is viable.
Determining the right threshold for delivery fees – high enough that the grocer is not losing money on its delivery service, without being so high that the expense deters consumers from ordering – can also be solved by testing different delivery charge amounts. By deploying different iterations of the delivery program with different levels of delivery fees, grocers can pinpoint which number is right.
Similarly, a one-size fits all delivery program across the store network is likely to be too expensive. Testing the program in some areas and not others will help the grocer figure out where it is viable.
• Bulk merchandise and membership
One group of consumers that low-cost grocers may have more difficulty wooing away are those that like to buy in bulk. Incumbent grocery players can capitalize on this consumer preference in several ways.
First, they can offer a wider assortment of bulk merchandise, trialing different arrays of items in different locations to determine the right offerings – and the right sizes – for different markets. And in the fashion of members-only retailers, grocery chains should also consider membership club and loyalty strategies to reward consumers for purchasing in high volumes. More broadly, now is the time for grocers and retailers with food offerings to test the introduction of a loyalty program, if they have not already.
As the industry landscape becomes even more competitive and margins grow even tighter with the arrival of Lidl and expansion of Aldi, all food retailers must capitalize on and refine every strategy in their innovation toolbox to build their immunity and defend themselves against the low-cost grocery threat. In the grocery war, those that quickly and strategically invest in the right new programs and avoid the temptation of making quick but unprofitable decisions will be the victors.
Jeff Campbell is a VP at Applied Predictive Technologies (APT), a provider of business analytics software.
Washington Spotlight: Amazon and the Politics of Retail
The recent announcement that Amazon intends to purchase Whole Foods Market has the retail and grocery store industry reeling as traditional grocers assess the near and long-term impact that the online giant’s much larger position in the marketplace may have. And with good reason. Amazon is the classic “disruptor” and has changed the face of every industry it touches. But aside from the competitive aspects, this move potentially has significant political and policy impacts as well.
When compared to other industries in the retail and service sector, the grocery industry has a significantly higher rate of unionization than its peers in traditional retail, restaurant and convenience store sectors and the largest union representing grocery workers – the United Food & Commercial Workers – is a politically powerful organization. Aside from their ongoing, decades-long assault on Walmart, the UFCW has been relatively quiet and allowed other unions, most notably the Service Employees International Union (SEIU), to do the heavy lifting with regard to leading the campaigns for a $15 minimum wage, expanded paid leave policies, scheduling reform, and a host of other business model issues important to retailers. But that could all change now.
As history shows, Amazon brings a high-level of efficiency and automation to the marketplace, not to mention cost savings. And did I mention disruption? That one’s worth repeating because a majority of the savings that consumers love, comes from Amazon’s disruption to the labor model. That kind of disruption may re-awaken the sleeping giant known as the UFCW.
Amazon’s model has traditionally relied on as few actual employees as possible, levering a vast network of independent contractors. And nothing threatens the fundamental existence of traditional labor unions more than the gig economy and its widespread leveraging of independent contractors by employers across industry sectors. This is why we have seen a vigorous effort by the labor community to do what they can to put the independent contractor genie back in the bottle.
The labor community is in a desperate fight for survival – from aggressively pressuring the NLRB during the Obama years and classifying independent contractors as employees in as many cases as possible before the board, to pressuring lawmakers in California, Seattle and New York City to classify Uber drivers as employees. Again, most of that effort has been led by the SEIU and other unions, but with only marginal success.
Now that the mighty Amazon has plunged much further into the grocery business, look for the UFCW to dust off the cobwebs and step up their game. The question is, how? They could take an aggressive approach — fully engaging in the worker classification fight whether through legislation, regulation or the courts; by dropping their largely unsuccessful war against Walmart in order to recalibrate and turn their sights on a corporate campaign against Amazon; or by leveraging their political allies to stymie Amazon’s business model at every turn.
Or will the UFCW take a more conciliatory approach — working with grocers with whom they already have collective bargaining agreements and concede enough to help them stay competitive with Amazon, or maybe offering potential partnerships with Amazon and similar players on job training and apprenticeship programs as other unions have done.
Generally, they’ll have to try something to prepare themselves for the booming gig economy and attempt to stay relevant in the rapidly approaching labor market of the future.
The politics of the gig economy are interesting to say the least and chock full of contrasts. Democrats love “tech” and have traditionally been close to Silicon Valley despite what automation and technology are doing to the labor market. It’s the Republicans who have been very supportive of new economy disruptors like Amazon, Uber and AirBNB. People under 40 are increasingly voting Democrat at the ballot box as they tend to be sympathetic to the potential displacement of workers and supportive of “pro-worker” policies. That contradicts with their consumer habits. The same people are voting as consumers on the web by embracing the very same disruptive, online economy Republicans seem to be protecting. Essentially, they are Democratic voters but Republican consumers.
How the unions, most notably the SEIU and potentially the UFCW navigate that political paradigm remains to be seen. But if they don’t figure it out soon, they may find themselves a few clicks away from being deleted.
Joe Kefauver is managing partner of Align Public Strategies, a full-service public affairs and creative firm that helps corporate brands, governments and nonprofits navigate the outside world and inform their internal decision-making.
Juniper: Retailers brace for $71 billion card-not-present fraud loss
With fraudulent card-not-present (CNP) transactions on the rise, losses will become staggering over the next five years.
Retailers stand to lose $71 billion globally by 2022, driven by a number of factors, such as the United States' shift to Europay, MasterCard and Visa (EMV) chip cards, delays in 3DS 2.0 (3D-Secure) and click-and-collect fraud. This was according to “Online Payment Fraud: Emerging Threats, Key Vertical Strategies & Market Forecasts 2017-2022,” a report from Juniper Research.
By 2022, fraudulent CNP physical goods sales will reach $14.8 billion annually. Click-and-collect services are particularly vulnerable, given the lack of a mandatory residential delivery address. Yet, retailers remain reluctant to impose rigorous identity checks on order pick-up for fear of damaging the consumer experience and reducing conversion rates.
Meanwhile, many merchants perceive combatting fraud as too expensive. Consequently, they have been ill-prepared to deal with the shift to online fraud following the introduction of EMV (chip and signature) payment cards in the U.S. In most instances however, merchants would receive value from their investment.
For those companies that are taking steps to fight back, three key battle-grounds are emerging in the fight against fraud. By 2018, machine learn-ing will emerge as a key tool in identifying genuine users. The increased shift to mobile e-commerce will also increasingly rely on 3DS 2.0, a mes-saging protocol to enable consumers to authenticate themselves with their card issuer when making CNP e-commerce purchases. Biometrics usage will also accelerate, the study revealed.
"2018 will herald the arrival of new tools in the fight against fraud", said Steffen Sorrell, senior analyst, Juniper Research. "3DS 2.0 will finally begin to rollout and will mark a paradigm shift in terms of merchants and issuers leveraging shared data. We also expect passive biometrics, such as the manner in which a device is handled, to become key in the future."