Store of the Future WINNING STRATEGY - Planet Retail RNG
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WINNING STRATEGY
Store of the
Future
1 | Store of the Future 2017
STEIP
Introduction
S
SOCIETY
T
TECHNOLOGY
E
ECONOMY
I
INDUSTRY
P
POLICY
Our STEIP approach is rooted in a fundamental The drivers The drivers
The drivers The drivers
bottom-up assessment of the variables that altering enabling new The wildcards
impacting the dictating the
consumer models, and
could impact our future world. Combined with behaviour and processes and
health of competitive
disruptions
PlanetRetail RNG’s proprietary global data, global retail environment
preferences possibilities
industry knowledge and analyst insights, this
will support you in growing your business.
We use STEIP as a focal lens to form a view on
how our future might unfold, with particular
emphasis on the consumer and industry. New Set of Assumptions About the
With this set of assumptions about the future Future
world, we analysed potential implications on
decisions for retailers and brands, and therefore
the Winning Strategies to invest in as you make
decisions about markets, resources and talent.
Implications for Strategic
Decisions
Define Winning Strategies
2 | Store of the Future 2017
Introducing:
PlanetRetail RNG’s
2017 Winning
Strategies Ecommerce &
Digital Supply Chain &
Ecosystem Fulfilment
With the majority of retail sales being
completed through stores and many leading
retailers still highly reliant on their physical
assets, their recent slowdown in sales is a
major concern.
Management
This Winning Strategy report recognises the
urgent need to reinvent physical stores (with an
emphasis on grocery) and addresses:
• The impact the slowdown in store sales
is having.
Shopper
• The factors behind the slowdown.
Store of the
• The characteristics crucial for a store of the
Engagement &
future reinvention.
Future
• The key capabilities required to enable the
transformation.
Retention
• Clear implications and recommendations for
both retailers and suppliers.
3 | Store of the Future 2017
Contents
1. Situational Analysis
2. STEIP Drivers of Change
3. Store of the Future Explained
4. Key Capabilities
5. The Future World
6. Implications for Retailers
and Suppliers
Research for this report included interviews with leading retailers
currently pursuing their own Store of the Future initiatives.
4 | Store of the Future 2017
Situational
Analysis
5 | Store of the Future 2017
The physical store
is under threat Weakening
New set of
Growth of demand for
consumer
Ecommerce discretionary
Retail stores are facing competitive expectations
pressures brought on by the shift to online purchases
as well as social, technological and economic
factors.
These are eroding the need and appeal of
big-box stores in particular.
As growth slows, retailers are responding by
scaling back new store expansion, closing Slowing growth for
stores, investing in smaller grocery stores,
and reshaping their existing physical assets physical stores
by reimagining the store of the future.
The store is not dead – but needs to be
reinvented to remain relevant for the future.
Store of Channel/
Store
the Future operational
closures
initiatives diversification
6 | Store of the Future 2017
Store growth is The rate of store opening growth will halve between 2014 and 2022
slowing and stores
are getting ever Global and US: Grocery Store Openings 5-year CAGR, 2014-22 (%)
6
smaller 5
4
%
The past five years have seen a significant shift
3
in store expansion, with the growth in store
opening and sales area seen in previous 2
decades being reversed. 1
Since 2014, the rate of new store openings 0
globally has been in decline, with the sharpest 2014 2016 2018 2020 2022
falls seen in developed markets where chain Global US
retail is more saturated. Source: Planet Retail RNG
This coincides with a fall in the average sales
Average Sales Area of Global Grocery Stores, 2010-22 (sq m)
area of grocery stores globally from 2012. 1,050
In contrast, the average sales area of a grocery 1,031
1,000 1,019
store actually increased by 4% over the
Square metres
995
previous decade (2002-12). 950 959
932
900 912
892
850
800
2010 2012 2014 2016 2018 2020 2022
Source: Planet Retail RNG
7 | Store of the Future 2017
Same-store sales are Key retailers struggling to generate positive like-for-like store growth
under pressure
With sales of key big-box channels slowing, Annual Like-for-like Sales Growth of Selected Grocery Retailers, 2000-2016
leading grocery retailers have struggled to
10%
grow sales through their existing stores.
Tesco, Walmart and Target are examples of 8%
leading retailers still highly reliant on large
stores for the majority of their revenue. 6%
Such stores have been particularly vulnerable
to the growth of online, but also proximity 4%
formats such as convenience and discount
stores. 2%
%
This is reflected by a decline in comparable
0%
store sales growth over the past decade. 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Retailers will have to contend with low, or even -2%
negative, growth through existing physical
stores being the norm in the future. -4%
-6%
Tesco UK (excl fuel) Walmart Target
Source: Planet Retail RNG
8 | Store of the Future 2017
Big-box stores are Hypermarkets & Superstores are the largest modern grocery channel, but
will be the slowest growing over the next five years
most affected
Global: Grocery and Drugstore Channel Sizes by Sales, 2017-2022f
The hypermarket & superstores channel is the
modern physical grocery format suffering
most. The fact that it is also the largest
channel for modern chain retail represents a
major challenge for leading retailers and
suppliers.
Their traditional unique selling points of large
product range, low prices and ‘all under one
roof’ appeal are being eroded by online and
discount channel growth.
Hypermarkets Drugstores & Supermarkets & Cash & carry and Convenience & Discount
In emerging markets, the modern physical & Superstores Pharmacies Neighbourhood warehouse clubs Forecourt Stores Stores
grocery space is still less saturated and Stores
opportunities for new stores remain.
However, the rapid growth of ecommerce
1.9% 3.5% 3.7% 4.4% 4.8% 5.8%
CAGR 2017-2022f CAGR 2017-2022f CAGR 2017-2022f CAGR 2017-2022f CAGR 2017-2022f CAGR 2017-2022f
means large stores will never gain as strong a
presence as in developed markets.
Note: Size of bubble relates to banner sales by channel.
Note: Data relates only to leading retailers globally within the Planet Retail RNG database.
Source: Planet Retail RNG
9 | Store of the Future 2017
Reliance on big-box 77% of the world's five largest grocery retailers' sales will still come from big-
box formats in 2022
is hitting leading
retailers hard
Proportion of sales from big- Proportion of sales from big-
box* grocery formats, 2017 box* grocery formats, 2022
In recent decades, leading grocery retailers
have typically grown by pursuing a strategy
of opening more and more larger stores.
92% 86%
This has led to many of them becoming
highly reliant on big-box physical assets.
96% 93%
Although diversifying away from big-box is a
common strategy, a significant shift in the
short term is impossible. 65% 63%
Leading grocery retailers cannot let their
big-box stores fail.
97% 96%
Retailers therefore have to improve the
21% 16%
relevance of all of their physical stores,
including their big boxes, by adopting key
'store of the future' characteristics.
Seven & I sales dominated by 7-Eleven convenience stores, although even in
Japan its Ito-Yokado hypermarkets are experiencing stagnant growth.
Source: Planet Retail RNG
Note: * Big-box refers to hypermarkets & superstores, department stores, cash & carries and warehouse club formats. i.e. grocery stores over 5,000
sq m (54,000 sq ft) in size.
10 | Store of the Future 2017Leading retailers Stores still account for the majority of profits at leading retailers
facing profitability
pressures as online
Ecommerce vs Store-based Grocery Retailer Comparison of Typical P&L
takes share
Online grocers Store-based grocer
Leading retailers are still reliant on stores
not just for the bulk of their revenue, but for Revenue 100.0% 100.0%
the majority of their profits as well.
COGS (cost of goods sold) 83.3% 79.4%
Despite the burden of outlet costs, store-
based retailers still generate higher margins Gross margin 16.7% 20.6%
than pure-play retailers. This is due to the
significant fulfilment costs associated with Operating expenses 16.3% 17.8%
online operations. This explains the need for
online-only operators to establish a physical - Store rental 0.0% 3.5%
presence.
- Personnel 3.4% 8.3%
With online as a proportion of leading
retailers’ revenue increasing, pressure on - Fulfilment 7.4% 3.0%
profitability is growing.
- Marketing 2.5% 1.5%
Shareholder returns are also being squeezed
as investment is ramped up in enhancing - Technology 3.0% 1.5%
their digital capabilities and on store
refurbishments. Walmart, for example, Operating income 0.4% 2.8%
warned in 2016 that profits would be
impacted by investment in higher wages and
a USD2 billion investment in ecommerce Source: Planet Retail RNG research and estimates
over 2016-18.
11 | Store of the Future 2017While digital Amazon and Alibaba have made a series of major investments in physical
retail over the past two years
players are taking
an increased
interest in stores September – January –
While many established store-based retailers are August – 20% Stake in Yum! Acquires May – Acquires
stake and China through department March – First 18% stake in
facing the reality of slowing sales and being over-
partnership with investment firm. store operator Fresh Pickup Lianhua.
spaced, digital players recognise the critical Suning. Intime. location opens
importance of gaining a physical presence.
Stores help support the omni-channel
proposition by providing extra flexibility in terms
of order collection, returns, service and a physical
environment to showcase the brand.
The past two years have seen previous pure-play 2015 2016 2017
operators such as Amazon and Alibaba
establishing physical stores to promote their
brands and products, as well as acting as
collection and fulfilment points. November – First
Amazon Books
Attempts by both Alibaba and Amazon to grow store opens. January – First November –
their physical footprint are accelerating. physical store June – Acquisition
32% stake in
opens in Tianjin. of Whole Foods
Amazon’s June 2017 acquisition of Whole Foods warehouse club February – Market.
Market, with 480 stores, is the highest profile operator Partnership with
example. We expect further consolidation in Sanjiang. Bailian.
this space.
The expansion of digital players’ physical
capabilities will fuel their online growth further,
thereby continuing to ramp up the competitive
pressures on store-based retailers.
12 | Store of the Future 2017STEIP Drivers
of Change
13 | Store of the Future 2017SOCIETY
The shift away from Rising urbanisation and declining household size favour smaller basket
sizes and a higher frequency of shopping
large stores is being
driven by smaller Average People Per Household
household sizes and 5.0
4.8 4.7 4.7
2012 2017 2022e
urbanisation 4.0 3.7 3.6 3.6
3.0 2.6 2.5 2.4
Shoppers will be living in smaller spaces, with
less storage space. So, frequent trips will 2.0
become more common than larger stock-up
1.0
shops and bulk purchases.
0.0
Importance of traditional shopping cohorts, Developing Emerging Developed
such as “moms”, will change as family size and Source: Planet Retail RNG
structure evolves.
High real estate costs mean that realising Urban vs. Rural Population (%) Rural Urban
return on investment is more difficult, while 100%
logistics will be impacted by congestion and 90%
transportation infrastructure limitations. 80%
70%
60%
50%
40%
30%
20%
10%
0%
2012 2017 2022e 2012 2017 2022e 2012 2017 2022e 2012 2017 2022e 2012 2017 2022e 2012 2017 2022e
Africa & Middle East Asia & Oceania Central & Eastern Latin America North America Western Europe
Europe
Source: Planet Retail RNG
14 | Store of the Future 2017SOCIETY
Consumer spending on retail is in decline in both developed and developing
Shoppers markets
increasingly value
Share of Consumer Spending on Retail by Top Markets (%)
experiences
100%
Consumers are shifting their spending towards
90%
experiences, such as travel, entertainment,
and dining out for longer.
80%
Younger generations are also deferring major 70%
life decisions, such as getting married, having
children and buying their first home, all of 60%
which are key spending periods.
50%
The explosion of social media and the
obsession with sharing experience-based 40%
content is also fuelling the shift.
30%
Between 1997 and 2022, the retail share of
consumer spending is expected to drop by 20%
around 10% in markets such as Germany, the
UK, China and Brazil. 10%
While the trend is more pronounced in 0%
developed markets, the trend is occurring USA United Kingdom Germany China India Brazil Mexico
globally.
1997 2002 2007 2012 2017 2022e
Source: Planet Retail RNG
15 | Store of the Future 2017SOCIETY
Expectations of on-
demand consumers
cannot always be met Demands Hyper-
Asset-Light
with stores alone Convenience &
Lifestyles
Personalisation
Flexibility Expectations
Unprecedented access to information combined
with the need for instant gratification and
personalisation has led to the rise of the ‘on- On-Demand Consumer
demand’ consumer.
These consumers have a new set of expectations Seamless & Demands
– they demand and expect to get what they want, Frictionless Experiential
how they want it, and when they want it.
Experience Environments
The traditional physical store, with its fixed
location, finite product range and limited ability
to offer personalisation is limited in its ability to
meet these needs.
Immediacy Accountability
Consumer
Critical – Instant Transparency &
Empowerment
Gratification Traceability
16 | Store of the Future 2017TECHNOLOGY
Digital access is Developing regions experiencing rapid growth in internet penetration
opening up access to
Share of Internet Users per 100 People by Development Stage (%)
new consumers
More than 1.1 billion new internet users globally 2012 2017 2021e
will come online by 2021.
100
This will fuel further growth of ecommerce
91.1
86.9
globally and the wider influence of digital.
Global ecommerce will nearly double by 2022, 79.0
80 76.7
with forecasted sales of USD2.7 trillion.
67.3
The proliferation of mobile digital devices and
61.4
the rise of the Internet of Things, means that
consumers’ behaviour both online and offline 60
52.2
will be radically influenced by the digital world.
46.4
Digital shopping tools and online access is
opening up consumers to brands and retailers 40
much earlier in the development cycle of a
country and quickening the shift away from the 25.3
traditional economy.
20
This is particularly true for developing markets
where rural consumers can now be accessed
directly and instantly.
0
Developing Emerging Developed
Source: Planet Retail RNG
17 | Store of the Future 2017TECHNOLOGY
New digital disruption
The advent of new points of purchase means consumers In contrast, consumers will look to delegate an
will further erode the will look to devote an increasing proportion of their
shopping time to categories, brands and occasions
increasing amount of their regular, non-value
added, replenishable shopping to digital systems
role of the store for where there is added value, or an experience and service
is needed. This will be fulfilled though the stores, virtual
which offer convenience. This include auto-
replenishment systems and subscription services.
certain shopper needs and augmented reality and social shopping. The role of the store is diminished.
Ongoing development of digital services,
such as virtual personal assistants, will lead
to further growth of auto-replenishment
solutions. Low brand
Experience Value added Service Regular Convenience
stickiness
This will further erode the need for easily-
replenished categories, such as pet,
household goods and toiletries to have a
place within the store.
This shift will encourage further transition of
the principle role of the store away from
selling products and towards them acting as
physical portals into brands and product Social Shopping AR Virtual Reality Click to Buy Voice Mobile
experiences.
Store Auto- Direct to
Replenishment consumer
18 | Store of the Future 2017ECONOMY
Pressure on the Absolute poverty is in decline in emerging regions, while middle income
is under pressure in developed regions
middle class fuelling
discount growth Income Distribution by Region (%), 2012-21
100%
Developed markets, where modern grocery 90%
retailers have the greatest reliance, are seeing 80%
the pressure on the middle class intensify.
70%
This will trigger heightened price sensitivity, 60%
driving them to trade down across formats
and brands. 50%
40%
Meanwhile, in regions such as North America,
the proportion of high earners will also 30%
increase, opening up opportunities for
premium retailers and brands.
20%
10%
It will be those retailers and brands catering to
the mainstream middle through big-box that 0%
2012
2017
2017
2012
2017
2012
2017
2012
2017
2012
2012
2017
2021e
2021e
2021e
2021e
2021e
2021e
suffers the most as shoppers desert them in
favour of discount and differentiated formats.
Africa & Middle Asia & Oceania Central & Eastern Latin America North America Western Europe
In Asia and Africa, absolute poverty is East Europe
decreasing as disposable income rises,
meaning that more households will join 0-$5,000 $5,001-$10,000 $10,001-$25,000 $25,001-$50,000 $50,001-$75,000 $75,000+
relative 'middle classes' by 2021.
Source: Planet Retail RNG
Note: Income shown in USD, subject to FX volatility
19 | Store of the Future 2017INDUSTRY
Discount stores are Discount channel will double market share in markets such as UK,
Poland and Turkey between 2000 and 2022
gaining share
across the globe Share of Discount Channel of Food Retail Sales, 2000-2022e(%)
Mainstream grocers are facing tough 60
competition from discounters, particularly in
the key grocery categories offered by such
stores. Their growth has been driven in part 50
by aggressive expansion and strong value
perception.
40
In addition, many Western markets were
impacted by the 2008/09 financial crisis.
Lower consumer confidence generated 30
greater interest in the discount channel,
allowing share to grow.
20
Competitors have now reacted with either a
greater focus on price and value or by
10
looking to differentiating themselves, a
strategy where their stores play an
important role. 0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Germany Norway Poland Turkey UK USA Mexico Brazil
Source: Planet Retail RNG
20 | Store of the Future 2017INDUSTRY
Store rationalisation Leading store-based retailers are investing heavily in digital acquisitions
as a result of
increased retailer Jul – Jun –
consolidation Sainsbury’s
Acquires
Sep – Feb – Walmart Jun – Walgreens
Walmart
acquires
Walmart acquires to acquire 2,186
Argos Bonobos
acquires Moosejaw Rite Aid stores
With the number of stores reaching
Jet.com
saturation point in the developed world,
consolidation is one route to gain greater
scale and generate efficiencies.
Acquisition of ecommerce operations by 2016 2017
predominantly store-based retailers looking
to play catch up is also diverting investment
from store expansion.
Walmart, the world’s largest store-based Jul – Ahold and
retailer, is slowing down its rate of physical Delhaize finalize Jan – Walmart
store openings at the same time as their merger acquires
ramping up investment and acquisitions of Jun – Amazon
Shoebuy
acquires Whole
digital players. Mar – Walmart Foods
acquires
For Walmart, the number of new US Modcloth
Supercenters is expected to not exceed 15 in
2018, compared to a historic opening rate of
over 100 per annum in the US between
2005-15.
Apr – PetSmart
acquires
Chewy.com
21 | Store of the Future 2017INDUSTRY
Ecommerce is taking Ecommerce will account for 25% of all chain retail sales by 2022
share away from
physical stores – with Global Ecommerce vs Store-Based Chain Retail Sales (USD bn)
grocery yet to feel the
Ecommerce Store-Based
full impact $8,000 $7,676
Ecommerce will account for 25% of all global $7,000
$6,298
modern chain retail sales by 2022, up from 8%
in 2012. $6,000
Retail Sales (USD bn)
$5,217
However, while ecommerce is gaining share, it
$5,000
is important to recognise that the majority of
retail sales still go through physical stores –
and will continue to do so for the foreseeable $4,000
future. 25%
$3,000 $2,567
Indeed, store-based sales will continue to see
incremental growth, especially in emerging 18%
markets where new store opening $2,000
8% $1,357
opportunities still exist.
$1,000
$455
$0
Sales 2012 Sales 2017 Sales 2022 e
Source: Planet Retail RNG
Note: Based on Planet Retail RNG modern chain retailer universe.
22 | Store of the Future 2017INDUSTRY
Emerging markets Ecommerce growing in tandem with store growth in regions such as Asia
will take the lead in
reinventing stores Ecommerce vs Store-Based GMV by Region (USD bn)
2012 2017 2022 e
In regions such as Asia, digital and stores are $3,500
developing in tandem alongside each other.
$3,000
Less constrained by existing dominant store
bases, retailers in these regions have the $2,500
opportunity for a much more radical approach
to the store of the future. $2,000
GMV (USD bn)
We predict that it is to Asia that we must $1,500
look for a true long-term vision of the store of
the future. $1,000
In contrast, in Europe and North America, $500
leading retailers are being forced to rethink
their sizeable existing store networks. $0
Store-Based
Store-Based
Store-Based
Store-Based
Store-Based
Ecommerce
Ecommerce
Ecommerce
Ecommerce
Ecommerce
Asia/Pacific Europe Latin America Middle East & Africa North America
Source: Planet Retail RNG
Note: Based on Planet Retail RNG modern chain retailer universe.
23 | Store of the Future 2017INDUSTRY
Ecommerce’s impact Online already accounts for >25% of sales in seven out of 17 centre store
categories
is being felt most in
the centre of the store
A number of non-food, ambient and
household goods categories have already
seen significant shifts online. At least 25% of
sales in categories such as baby, toys,
entertainment, office supplies and consumer
electronics have already shifted online.
Grocery has so far been more insulated from
the full force of ecommerce due to barriers
to deliveries and consumer perception,
particularly in fresh and frozen.
Fresh in particular is still an area where
physical stores hold a crucial advantage over
ecommerce. Many consumers still value
selecting the freshest produce themselves or
are sceptical about the quality of products
chosen and delivered. This is why fresh in Source: Planet Retail RNGc
particular is being emphasised by retailers in
their visions of stores of the future.
24 | Store of the Future 2017INDUSTRY
Store-based retailers Alibaba will leapfrog Walmart to become the world’s largest operator by 2022.
being overtaken on
global stage
The shift to ecommerce is illustrated Rank 2012 Sales (USD bn) 2017 Sales (USD bn) 2022e Sales (USD bn)
through dramatic changes to the global
sales ranking between 2012 and 2022. 1 Walmart: $430.7 Walmart: $497.1 Alibaba Group: $696.6
Digital players have muscled out
established store-based players which had 2 Carrefour: $100.5 Alibaba Group: $341.7 Walmart: $601.9
spent decades establishing their positions.
In 2012, the top 5 retailers globally were all 3 Kroger: $95.8 Amazon: $237.1 Amazon: $458.4
store-based retailers.
4 Seven & I Holdings: $93.4 JD.com: $143.3 JD.com: $412.1
By 2017, three of the top 5 were digital-
based operators with limited store bases.
5 Costco: $90.5 Carrefour: $123.6 Carrefour: $159.9
By 2022, China’s largest ecommerce player
Alibaba will overtake the largest store- Source: Planet Retail RNGc
based retailer (Walmart) and even Amazon.
For the first time, the world’s largest player Predominantly store-based retailer Predominantly ecommerce-based retailer
will be both Asia-based and operate
predominantly through digital platforms.
25 | Store of the Future 2017STEIP
STEIP trends will Stores are going to have to operate in a dramatically different world over the
next decade
only accelerate the
transformation
SOCIETY TECHNOLOGY TECHNOLOGY
What is clear is that the range of factors From 2017-2050, half of 50% of all online searches By 2020, customers will
driving the need to reinvent stores is only the world’s population globally by 2020 will be manage 85% of their
going to increase. growth will take place in by voice relationships with an
just nine countries enterprise without
The world in which modern stores first interacting with a human
emerged is going to recede further and
further into the distance at an ever-
accelerating pace. Source: UN World Population Source: ComScore, 2017 Source: Gartner
Prospects
Long-standing socio-demographic factors
will remain, while the pace of technological
change will accelerate.
A tipping point will be reached in certain
ECONOMY INDUSTRY INDUSTRY
areas over the next decade (such as
45% of the fastest- Ecommerce will account The world’s largest
ecommerce reaching 25% of all modern
chain retail sales) which will mean even
growing companies in the for 25% of global modern ‘retailer’ will be a software
more radical reinventions of physical world will “employ” more chain retail sales by 2022 company (Alibaba)
stores - both in their form and role - are a smart machines and and drive 46% of
necessity in order to survive. virtual assistants than all growth
people by 2018
Source: Gartner Source: Planet Retail RNG Source: Planet Retail RNG
26 | Store of the Future 2017Store of the
Future
Explained
27 | Store of the Future 2017The role of the store Differentiated characteristics of the store of the future will be facilitated
by technology
has to evolve away
from being
transaction-based
Traditional store Store of the Future
Stores still rely on - and need to reinvent
themselves away from - their traditional
Events Community role
characteristics of range, price and proximity.
Inspiration Social and meeting hub
To differentiate, the store will increasingly Shop-in-shops Restaurants
become a physical portal into brands and Range Education
product experiences – becoming places Customer service Experiential Social
where consumers can be inspired, learn, and experience
co-work, socialise, and experiment with Price
new products.
Proximity Click & collect Frictionless Curated Product curation
Planet Retail RNG has identified four key
Digital engagement Exclusives
characteristics of the store of the future:
Fulfilled by store Focus on fresh
• Creating a memorable experience that
Checkout-less stores “Made in Store”
can’t be replicated online;
• Positioning the store as a social hub;
• Building a frictionless interaction with
online to offline integration;
• Differentiating through product
curation.
Source: Planet Retail RNG
28 | Store of the Future 2017The future is also Big-box loses share of leading grocery retailers’ sales, while proximity grows
smaller
Breakdown of Sales by Store Type for Modern Grocery Retailers, 2012-17-22e (%)
As well as the average size of a grocery store
100%
continuing to decline (see STEIP Drivers of
Change), proximity grocery formats are growing 90%
their share of modern grocery retailers’ sales. 28% 27% 28%
80%
This is the result of leading operators 70%
% of Total Sales
expanding their convenience and discount
store networks, while the big-box channel 60%
stagnates. 50%
55% 54% 51%
Proximity formats cater to the rising consumer 40%
demands for convenience and value, and are
30%
less impacted by the shift to online.
20%
19% 21%
10% 17%
0%
2012 2017 2022 e
Other grocery Big-box Proximity
Source: Planet Retail RNG
Note: Data relates to sample of 500 leading modern grocery retailers within the Planet Retail RNG’s universe.
Proximity consists of convenience & forecourt store and discount store channels.
Big-box relates to hypermarket & superstore and cash & carry and warehouse club channels.
Source: Planet Retail RNG
29 | Store of the Future 2017Retailers are • Dollar General has debuted an
urban convenience format
innovating with offering a limited range of
merchandise aimed at the time-
smaller urban formats •
constrained shopper.
The 3300 sq m store boasts a
modern design using distinct
category sections and new
offers, such as a coffee and
Retailers are also adopting smaller store formats donut station and ready-to-eat
meals.
and downsizing their existing stores. This is • Seeing that the bare minimum
evident from the declining average size of stores shopping experience is no
and the fact that the discount and convenience longer sufficient, Dollar General
channels remain the two fastest-growing aims to differentiate within a
redefined industry where
physical grocery channels. shoppers seek proximity, as
well as value and a diversified
This shift is being driven by: experience.
• The need to offer enhanced convenience to
time-pressed shoppers in increasingly urban • Kroger has debuted a smaller,
environments; convenience-oriented store
format called Fresh Eats MKT.
• The banner includes made-to-
• The shift online negating the need to stock order food items, a
large product ranges in stores; comprehensive produce area,
as well as a bakery and bulk
section, in addition to a
• The need to enhance online to offline
pharmacy, gas station and
collection and fulfilment services. outside seating patio
• The smaller-format store offers
a wider assortment than a
traditional convenience store
capable of serving both fill-in
trips and broader stock-ups
30 | Store of the Future 2017Store of the future A changing retail landscape as channels evolve towards the store of the future
characteristics apply
to all channels Discount convenience hybrids:
Aldi high street concepts
The store of the future is playing a central Convenience Discount enhancing convenience proposition Discount
role in the complex shifts occurring across stores
the retail landscape.
• Big-box, convenience, discount and even
online operators are evolving towards the
differentiating characteristics of the store
of the future.
Store of
Shift towards smaller store
• Big-box and discount are blurring with
convenience through the launch of
Smaller urban the future Operational barriers to discounters moving
concepts:
formats
online
smaller urban concepts. Kroger Fresh Eats Experiential
MKT Frictionless
• Operational obstacles preventing Curated
discounters from offering online services Social
are encouraging shift towards discount
store evolution.
• Online itself is being influenced by the
latest physical stores through collection of
data on shoppers instore.
Online
Big-box Inclusion of O2O capabilities
Source: Planet Retail RNG
31 | Store of the Future 2017Current best in class -
Metro Group Experiential Social
Wine room, sommelier Innovation lounge Restaurant Classes
service, wine bar
Opened in late 2016 and established as
Metro’s flagship Real hypermarket concept,
the Markthalle Krefeld store aims to:
• Convey the atmosphere of a traditional
market hall; Education
• Carry an improved and expanded
assortment;
• Offer more sophisticated services.
The store offers click & collect and features
digital kiosks enabling customers to access
products online. Frictionless Curated
Mobile payment Endless aisle Curated ranges Gluten-free, vegan, healthy
This overhaul was a much-needed effort by
Metro to test new features that could
re-energise its hypermarket base.
Metro is testing out various initiatives within
the store with the aim of rolling out the
most relevant ones as it refurbishes its wider Store-in-store Made-in-store pasta
store network.
32 | Store of the Future 2017Current best in class -
Walmart Experiential Social
Education Family salon
In early 2017 Walmart opened what it describes
as its “next-gen test store” in Tomball, Texas.
Key features include:
• Scan & Go shopping technology that allows Inspirational brand
users to scan their own items and checkout
without having to wait in line;
• Multiple digital screens that give shoppers
access to coupons and Walmart’s endless
aisles;
• Curbside pickup, as well as automated Frictionless Curated
kiosks in-store for online order retrieval;
Curbside pickup Scan & Go Expanded fresh
• A café operated by influential health food
brand Chobani.
Endless aisle Store pickup
33 | Store of the Future 2017Current best in class -
Coop Italia Experiential Social
Store-in-store Vertical farm
Coop in Italy’s Store of the Future concept
opened for business in Milan in December 2016.
The flagship store combines physical and digital,
aiming to satisfy modern consumers’ demand for
information, engagement and functionality in a
simple and intuitive way.
Features include:
• Sensors detect a shopper’s hand when held
over a product and then provide details,
such as origin and price on digital screens; Frictionless Curated
Interactive product tables Product curation Transparency of ingredients
• Digital screens provide enhanced
transparency and traceability information,
such as caloric intake and carbon footprint;
• A personalised branded app that provides
navigation around the store.
34 | Store of the Future 2017Current best in class -
365 by Whole Foods Experiential Social
Product education Social and meeting hub
Whole Foods’ new banner, launched in 2016,
blends Whole Foods’ values and a more price-
competitive stance with new technology:
• The Banquet sommelier app gives
shoppers information on wine and beer,
such as their origin and suggested
accompanying foods;
• Digital screens are located near the
prepared foods section so that customers
can order warm meal items and pick them
up at a designated counter as they are Frictionless Curated
leaving the store;
Order prepared foods instore Focus on fresh Curated ranges
• Third party specialist partners in the form
of a local vegan restaurant called ‘by
CHLOE’ and a coffee bar called ‘Allegro
Coffee’.
35 | Store of the Future 2017Current best in class -
Hema by Alibaba Experiential Social
Scan for product info Handpick live food Consume in the store
Hema is the supermarket concept created by
marketplace operator Alibaba and being rolled
out in China. The latest version was launched
in 2017.
• A focus on fresh food, including a variety of
service counters with different cuisines and
comprehensive produce and seafood
markets;
• Shoppers scan product barcodes using the
Hema app to access additional information;
Frictionless Curated
• Fulfils online orders within a 3 km radius and
Mobile payment Fulfilment for online orders Curated premium ranges
delivers in half an hour;
• Only accepts Alipay as a payment method,
forcing shoppers to download the app and
join the ecosystem.
36 | Store of the Future 2017Current best in class –
Carrefour Urban Life Experiential Social
Inspiration and education Social and meeting hub
Responding to rising urbanisation trends,
Carrefour launched its new Urban Life format
in Milan in 2017, measuring just over 120 sq
m/1,300 sq ft and primarily targeted towards
millennials.
This is an example where the elements of the
store of the future are applied well in a
proximity format.
Key features include:
• A meeting room and co-working space Frictionless Curated
with free Wi-Fi;
Order online, collect in-store Fresh, ready-to-eat, made in-store
• A lounge area that has a “Happy Hour”
every evening;
• Several prepared food counters;
• To-go items made fresh in-store.
37 | Store of the Future 2017Current iterations of Even current flagship stores are not truly differentiated
store of the future
don’t go far enough
Common characteristics in Evaluation of characteristics currently under-served in current
current best in class stores best in class stores
Planet Retail RNG’s opinion is that the current
stores of the future in operation represent just Focus characteristics: Still not experience-first destinations, which are truly
the beginning stages of a longer-term evolution. • % fresh differentiated from online
• Self-scanning checkouts
Our evaluation of current next-generation • Curated assortment
stores (and featured in the previous best in
Shopper ability to access enhanced product information
• Restaurants
class examples) is that no one retailer has • Click & collect remains limited
established a true store of the future. • Endless aisles
Restaurants do not appeal as destinations on their own
This is due to retailers having to compromise
and cater to an existing shopper base, for Declining characteristics
example, the need to still have manned Stores still reliant on physical manned checkouts
• Store size
checkouts alongside more automated solutions.
• Checkout zone
• SKU range Still friction for shoppers, e.g. online collection
• Non-food range
• Centre of store
• Manned stores Centre of store is still overstocked, limiting curation
38 | Store of the Future 2017Not every store will be Retailers will select store of the future characteristics to roll out across their
networks depending on store type and investment requirements.
completely revamped
Illustrative example of future store network
In the first phase, retailers typically open a
flagship store to showcase and trial initiatives. Flagship store Phase 1
Hypermarket – 15,000 sq m
Once evaluated, a selection of these initiatives Experiential Social
are then rolled out to individual stores in the Instore cookery classes Restaurant
second phase. Instore experience offered to loyalty scheme Dedicated dining experience operated by local
members in dedicated kitchen area. third party specialist.
The frictionless characteristic will be likely rolled
out to smaller stores. In contrast, the investment Frictionless Curated
and space required for experiential and social Scan & Go technology World food category
characteristics will limit them to larger stores. Use of shoppers’ smart phones to scan Aisle of the store devoted to ethnic foods,
items, pay for basket and exit the store. curated by country of origin.
Obstacles to roll-out include:
• The ability to upskill and relocate staff from Evaluation
front of store and maintenance roles to
service-oriented roles; Phase 2
• Significant level of investment required to Store A, Store B Store C
transform all stores across a network; Hypermarket - 10,000 sq m Superstore – 4,000 sq m Supermarket – 1,000 sq m
• Justifying investment in a channel where
store growth is modest or negative. Experiential Social Frictionless Curated Frictionless
Frictionless Curated
Note: Illustrative example only – does not refer to actual individual retailer.
Source: Planet Retail RNG
39 | Store of the Future 2017By working together Implications for retailers and suppliers across the four differentiated
characteristics
the industry can
create the store of Experiential Social
the future Recommendation for retailers
• Recognition that experiences are not a ‘nice to have’, but
Recommendation for retailers
• Partnerships with foodservice operators.
increasingly essential to differentiate. • Devote areas of store to non-retailing space.
• Own and drive seasonal or weekend events throughout • Reallocate and reskill employees to new tasks and away from
The reinvention of the store aligned to the the year. manual roles.
four identified characteristics brings a
Recommendation for suppliers Recommendation for suppliers
number of opportunities for retailers and • Explore new impulse and cross-merchandising opportunities
• Align promotional activity with retailers’ events.
suppliers, as identified on the right. • Exclusives and limited edition ranges. instore aligned to expanded foodservice options.
• Develop brand shop-in-shop concepts. • Increase food-to-go offerings.
These opportunities can only be fully • Develop own standalone flagship or pop-up shop concepts.
• Look to provide educational content instore.
realised if both parties can achieve a greater
understanding of customers and their
needs, demand and behaviour.
Suppliers with their own strong category Frictionless Curated
expertise and shopper insight capabilities Recommendation for retailers Recommendation for retailers
will therefore be seen as strong partners for • Investment in automation of front end solutions. • Range rationalisation.
retailers, especially those which have limited • Ensure true digital integration – may require ramping up • Increase focus on fresh category.
investment in own tech capabilities (e.g. Walmart Pay). • Partnerships with third party non-competitive retail authorities.
loyalty card or shopper data collection • Private label innovation and expansion.
schemes themselves. Recommendation for suppliers • Focus on shopper missions and occasions.
• Partner with retailers to tap into the in-store tailored marketing
opportunities that digital enables. Recommendation for suppliers
• Explore new impulse opportunities around online • Diversify brands from mass-market to mass-premium and
collection points. extend sub-brands (see Store Positioning capability).
• Ensuring just-in-time and in full deliveries to enable retailers to • Private label opportunities.
fulfil effectively from the store.
40 | Store of the Future 2017Key
Capabilities
41 | Store of the Future 2017Introducing the key
capabilities for the
Store of the Future
Experiential Merchandise Rethinking front
retail fundamentals of store
• We have identified six key capabilities In what ways will retailers How can the Store of the How can the front of
essential to successful execution on a
add experiences to stores Future use merchandise store evolve to face
Store of the Future Winning Strategy.
and what impact will to differentiate and drive market challenges and
• We have also tested our Store of the those have? traffic? consumer needs?
Future framework and these capabilities
through assessments of, and interviews
with, leading retailers and suppliers.
Digital New measures of Store
integration success positioning
How can retailers provide How can retailers instill a How can retailers assess
a truly seamless customer new set of KPIs to reflect what Store of the Future
experience between store the changing role of the vision is right for them?
and online? Store of the Future? Are they comfortable
driving out cost from the
model or adding cost to
differentiate?
42 | Store of the Future 2017Prioritising key Store Positioning is the most urgent capability, impacting all characteristics of
the store of the future.
capabilities against
their impact
Low Urgency for retailer High
Although each of the 6 key characteristics
plays a crucial role in enabling the store of
the future, our key capabilities matrix on Key capabilities
the right shows that not all characteristics Experiential Merchandise Rethinking Digital New Store
should be considered equal. retail fundamentals front of store integration measures of positioning
success
Store Positioning and New Measures of
High
Frictionless
Success are prioritised as the most
Store of the Future
characteristics
important key capabilities as they have the
greatest degree of impact across the store
characteristic
Experiential
of the future characteristics. Without
Impact
being fully engaged with these two
capabilities, the other capabilities will have Curated
limited success.
s
Social
Low
High impact Low impact
Source: Planet Retail RNG
43 | Store of the Future 2017K E Y C A PA B I L I T Y : S T O R E P O S I T I O N I N G
Retailers need to Retailers are escaping saturation in the “red ocean” by focusing either
on differentiation or low cost positioning
choose a strategic
position, either low
Differentiated • Premium • Experiential
cost or differentiated players • Service • Curation
Driven by saturation, asset-intensive store-based High
retailers are being forced to choose how they
want their stores to be positioned in the future. The “blue ocean”
Differentiated AND
Trying to play in what we define as the middle low cost
ground, or “red ocean”, with neither a clearly
differentiated nor low cost strategy is not a
willingness to pay
Differentiation/
viable option.
Retailers need to decide on a strategy where
they will move towards either:
• Low cost: comfortable driving out cost from
The “red ocean” Low cost
the model.
Neither differentiated, players
• Differentiated: adding cost to the model in
NOR low cost
• EDLP
order to differentiate. Differentiation implies a
• Self-service
higher willingness to pay – so there must be
something about the store, such as being
• Centralised
ultra-premium, service-focused, highly
Low
experiential, or health and wellness-targeted,
that appeals to consumers. High Cost Low
Source: Planet Retail RNG
44 | Store of the Future 2017K E Y C A PA B I L I T Y : S T O R E P O S I T I O N I N G
Boundaries continue Leading players don’t stand still and are looking to offer both differentiation
and low cost
to be redefined
The differentiated and low cost criteria
Differentiated
continue to be redefined as leading operators
constantly evolve and push the positional
players
boundaries.
High The “blue ocean”
Differentiated AND
Retailers are attempting to enter the “blue low cost
ocean” by offering both differentiation and
low cost.
Lidl’s new-concept store,
willingness to pay
Discounters realise that offering the bare
Differentiation/
Amazon slashed prices at Whole Foods in scheduled to open in late
minimum is no longer enough to retain and August 2017 as it looked to widen its appeal 2018/early 2019 in Sweden, will
feature a ‘deli shop’ plus a
attract the evolving shopper. and shed its expensive image.
restaurant and meeting areas.
Leading operators such as Lidl and Aldi are
expanding their fresh and organic ranges,
forging new partnerships and testing online
collection services.
The “red ocean”
The need to attract new consumers and stay
Neither In September 2017, Lidl
relevant means they are investing in different
concepts that they would have simply viewed differentiated, launched an exclusive range of
fashion items designed in
as adding complexity (and cost) in the past. NOR low cost collaboration with model Low cost
Heidi Klum.
Low players
High Cost Low
Source: Planet Retail RNG
45 | Store of the Future 2017K E Y C A PA B I L I T Y : S T O R E P O S I T I O N I N G
These new Squeezed mass market brands need to diversify to cater to differentiated
and low cost positionings
positionings will
require suppliers
to align themselves Premium brands
The transition of stores away from the middle • Clear target group positioning.
ground means that suppliers need to follow • Emphasis of emotional and
suit to remain relevant.
functional benefits. Mass-premium •
•
Clear brand personality.
Less price promotions.
• Understanding of customer
needs and trends. brands •
•
Selected distribution channels.
Uses digital to reach out to mass market.
Suppliers will need to develop their mass- • Targeted offline and online
market brands into four key areas: marketing support.
• Mass-premium brands – delivering Target group Functional
Mass-market brands
emotional value on top of just rational extension extension
value, e.g. Nespresso;
• Understanding of customer needs
and trends.
• Target group extension – providing • Emphasise price messaging. • Recognise and align with strategic
stronger emotional connections with Bring efficiencies to retailer partners. aims of retail partners.
Discount brands
•
customers, e.g. healthy living brand • Offered at discount stores. • Particularly strong if able to
variation; • No/little marketing support combine with to mass-premium
brand or target group extensions.
• Functional extension – adding a point of Recommendations for suppliers
difference to create a stronger rational Brand Offer:
connection with customers, e.g. • Decide which brands have potential to extend into mass-premium or target new customer groups.
adaption to enhance convenience; • Prioritise R&D and marketing support around these brands.
• Non-core brands with limited prospects to move out of mass market could be rationalised.
• Consider acquisition of niche and specialised brands to strengthen reach beyond organic brand extensions.
• Discount brands – where price is the
• Develop a segmented approach across four primary growth areas that will allow brands to tap into opportunities at low cost as
primary focus, e.g. private label. well as differentiated players.
Source: Planet Retail RNG adapted from Studiolavoro.nl
46 | Store of the Future 2017K E Y C A PA B I L I T Y : D I G I TA L I N T E G R AT I O N
Stores creating a Sainsbury’s - Argos (London, UK) –
Digital Ordering/Pickup In-Store
Walmart (Arkansas, USA) –
Automated Pickup Kiosk In-Store
Walmart (Texas, USA) –
Endless Aisle
seamless experience
with online
O2O
What is it?
Access to, and transparency of, relevant
information at every step of the shopping
journey. Digital and mobile technologies are
driving consumer expectations of consistent IKEA (USA) Farfetch (London, UK) – Carrefour (Taoyuan, Taiwan) –
RFID-Enabled Clothing Rack 3D Virtual Fitting Room
Digital experience
pricing, convenience and service irrespective Augmented Reality Shopping
of channel.
Why is it important?
Urban shoppers are seeking instant gratification,
combined with the availability of the endless
aisle, and convenience of click & collect.
The pressure to reduce labour costs and
improve efficiencies and customer service levels Walgreens Boots Alliance (UK) – Amazon Books (USA) – Price Parity Hema by Alibaba (China) –
in-store through digital integration. Mobile Sales Assistant with Online Website Scan for Product Info
Transparency
The need to engage with and target shoppers
based on their personal information and online
behaviour.
47 | Store of the Future 2017K E Y C A PA B I L I T Y : D I G I TA L I N T E G R AT I O N
Digital can create a Supplier Case Study: Coca-Cola’s In-Store Digital Signage
win-win for all • In 2017, Coca-Cola rolled out a new digital signage system attached to
endcaps in the centre store of US grocery outlets to deliver branded
video and e-coupons to customers.
• The project was launched after Albertsons noticed fewer grocery
shoppers were venturing down the beverage aisle and soda sales
were slumping.
Implications: • The digital signage can tailor content messaging to approaching
shoppers based on data from their smartphones.
Retailers that optimise their click & collect • Targeted messaging can range from brand campaigns to store-specific
promotional offers or even app-guided shopping lists.
services to offer a frictionless in-store
• A 250-store pilot with Albertsons delivered a one-month return on
experience will stand out over retailers who investment.
have lagged behind in ecommerce fulfilment • Albertsons also experienced a significant increase in overall
capabilities. category sales.
Incorporating emerging technologies into
store trips differentiates the physical
experience, while the fascination with new
digital capabilities can be a significant driver
of footfall.
Retailers and brands can leverage new
technologies to collect impactful Big Data Recommendations for suppliers
over time that will aid them in better serving Demand Chain Capabilities:
customer needs. • Brands should be open to aligning with non-traditional partners, including technology companies and data owners such as
Google. Does your brand have the right organisation and skills to support such partnerships?
• Suppliers that are able to demonstrate they are at the forefront of digital change will be able to position themselves as strong
partners with retailers. As such, suppliers may have to view investment in supporting digital initiatives in new ways – ensuring that
ROI is seen as just one measure as part of developing a more holistic long-term relationship with retailers.
• Retailers’ mobile apps and their own in-store technology means they will increasingly be the gatekeepers between brands and
shoppers in the store. Suppliers will need to ensure they have priority positioning across digital interfaces. Suppliers should
therefore already be supporting retailers’ digital efforts through the provision of strong content and promotional initiatives.
• Suppliers should already be considering what proportion of their marketing and promotional spend should be diverted towards
supporting such initiatives in the next five years.
48 | Store of the Future 2017K E Y C A PA B I L I T Y : R E T H I N K I N G F R O N T O F S T O R E
The checkout zone will
disappear altogether Retailers are looking to improve the convenience for consumers at the checkout zone by introducing a range of
technologies to allow self-scanning and checkout. Cashiers can be redeployed elsewhere within the store to provide
improved service.
What is it? 7-Eleven (Seoul, South Korea) - Amazon (USA) – K PRO by KFC (Hangzhou, China) –
Palm Vein Scanning ‘Just Walk Out’ ‘Smile to Pay’ Facial Recognition
Checkout-less
The decreasing role of physical checkout zones
within store environments will become a reality.
While traditional grocery retailers are more
constrained by their existing front-of-store
propositions, it is actually new digital entrants
who are moving fastest in the disruptive front
end payment space (e.g. Amazon and Alibaba).
Why is it important?
Unmanned stores, primarily for smaller outlets, enable retailers to solve staffing issues and costs through automation.
This capability will be crucial for convenience Most examples are in China where acceptance of mobile and digital payment has been driven by factors such as low
stores. In markets such as Japan, where credit card penetration, ubiquity of quick response (QR) codes and WeChat, and government policy.
convenience stores account for 24% of the food
retail sector, the ageing population is placing
pressure on the need to staff the 55,000 BingoBox (China) – Tao Café (Hangzhou, China) – Wheelys (Shanghai, China) –
WeChat Mobile Technology Mobile App Payment Mobile App Payment
convenience stores 24 hours a day.
Unmanned
Unmanned stores are already being made
possible through digital checkouts using
biometrics or mobile payments. Amazon’s ‘Just
Walk Out’ technology is currently in beta testing,
but will enable an even more frictionless
experience, requiring no digital checkout
process at all.
49 | Store of the Future 2017K E Y C A PA B I L I T Y : R E T H I N K I N G F R O N T O F S T O R E
Suppliers can exploit
the new impulse
opportunities New impulse siting opportunities
• Hershey is looking to tap into initiatives that
With physical checkouts having a decreased are playing a greater role in stores of the
role in the store of the future, suppliers of future, such as vending machines located at
impulse products need to identify and curbside collection points.
maximise new impulse opportunities. • Meanwhile, the expansion of foodservice
options and shopper mission-based ranges,
Impulse will still exist, but is shifting to where such as food-to-go or “big night in”, provides
new siting opportunities for snack,
the growth is occurring - towards online,
confectionery and beverage brands.
discount and convenience.
The dunnhumby Global Trends study of
shopping behaviour across 18 countries
showed the average frequency of shopping
trips increased by some 18% over the last five Digital impulse
years as this shift occurred. • The greater use of in-store digital
technology to replace the front end
As a result, new product siting opportunities provides opportunities for brands to
generate impulse through targeted
exist as retailers look to introduce more
© Bell One
promotions.
foodservice options and collection points, as
well as any new digital integration that • In 2015, Unilever used beacon technology
in Tesco stores in the UK to send
enables greater and more targeted
Magnum promotions to users of its app
engagement with shoppers. when either in-store or passing by.
• Meanwhile, augmented and virtual reality
will allow brands to create a range of
digital impulse opportunities as shoppers
navigate the store.
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