RETAIL INDUSTRY
Issues and challenges of the sector
A changing customer
Customers are very demanding: 24-hour ordering, immediate, tailor-made service, quality requirements, speed of delivery, personalized configuration... are today's must-haves. The customer is unique and demands to be considered as such;
He is now endowed with a strong bargaining power: expression, complaint on social networks, denunciation of abuses, pressure on prices... the customer has finally regained power. He wants to be an actor and co-creator of what he buys and what he consumes;
He is more informed than ever: the customer is now very well informed thanks to access to comparing tools, product information and consumer opinions. This raises questions about how to communicate with the customer and the media to use;
He becomes more and more imbued with ideas, values and identity: "moral values" that impose themselves on brands. (vegan, ecological, ethical, sharing, occasion…). There is an expressed expectation of a social experience. The widespread use of boycotts for products made in foreign countries is becoming more widespread;
He is flexible: customers - and in particular the generations X and Y - are less attached to a brand and are voluntarily diverting their attention from it. They have access to a multitude of offers and like to try and discover new experiences. As a result, the way of approaching customer loyalty is evolving;
He is focused on usages: customers demand transparency. They want to understand offers that are readable. They expect more confidentiality of their data and information while being ready to share it with their favorite brands. He demands a relationship of trust.
The major trend of the distribution
Four long-standing and structural trends are transforming the retail landscape: the gradual reduction and adaptation of sales areas and formats, a disrupted loyalty to the historical retail brands, a change in the structure of the offer in response to consumers' aspirations, and rapidly adapting logistics and local service in the retail sector.
The gradual reduction and adaptation of sales areas and formats
The hypermarket model, emerged with mass consumption, the prevalence of the car and the predominance of the traditional family, no longer correspond to the needs of consumers. The sales formats have diversified considerably: e-commerce, direct sales, neighborhood stores, wholesale, classic store, pop up store...
The lack of life in supermarkets is now a major disadvantage. The relational scarcity of this place of purchase is pointed out. At a time when the customer experience seems to be a must, it is considered insufficient by customers.
The point of sale must be a place of experience, especially for the millennials who do not primarily go to a physical store just to buy.
Nevertheless, physical shopping remains important for customers. Three factors make it more valuable than a digital purchase: the seller, the immediate availability of the product and the sensorial experience.
Also, the development of drive-through shopping raises questions about the need for such large surfaces that cannot even be penetrated. With the health crisis, the use of drives-in is expected to further increase.
The supermarket segment is therefore undergoing major reorganization. Site sales, social plan for thousands of employees. In 2019, announcements of restructuring by the sector's leaders confirm the uncertainty about the format of hypermarkets.
Loyalty to the historic retail brands turned upside down
Most mass-market consumer goods companies indicate that the heart of the problem, and its solution, lies in supply chain management.
Simultaneously, there are growing trends such as home deliveries. Several retailers in different countries and major cities are testing home delivery without the customer being present, with refilling of the refrigerator.
In this context, the problem of the last mile remains key. Brands and retailers are encouraged to form partnerships to provide storage space in city centres, or even to reallocate inefficient premises to storage uses.
The technological potentials to meet these challenges of personalization and instantaneity are numerous. The emergency of co-creation platforms and the coming maturity of the 3D printer in the coming years could disrupt established business models.
Technological tools to improve the in-store experience are encouraged (morphological recognition to guide choices, appointments made in advance or easier means of payment to limit waiting at the checkout).
However, retailer organizations are still far too narrow-minded to respond effectively to the diversity and scope of these issues. Each of the distribution channels is still often operated in silos. Historical channels are particularly resistant to change with the fear of losing their power in the organization.
In order to mediate, the voice of the customer must predominate by understanding and defining multi-channel customer paths.
A change in the offer's structure in response to consumers' aspirations
Retailers have committed themselves with rigour and conviction to societal and environmental initiatives. Food distributors are trying to catch the sustainable consumption trend. Through their private labels, they promote organic, fair trade and local products. But they are far from convincing.
More and more consumers are turning away from quick-fashion and are becoming a "less generation". They are sensitive to the image they send back to their network when they consume a product or a service. Numerous examples show that they choose above all a company that is meaningful and has a strong social impact.
Therefore, confidentiality and privacy are becoming more and more of a key selection factor. Today, consumers share their personal data more easily if they benefit from it. But they are also concerned about issues of digital freedoms. The respect of their privacy involves data protection and the issue of anonymity.
In this context, customers are sensitive to the respect of the GDPR regulation. Data security is a major issue with the rise in the use of inter-connected objects, the use of the cloud and the big data phenomenon
Loyalty to the historic retail brands turned upside down
Retailers are facing an increasing attack by brands on the online market. For a long time, they have hesitated to market their products directly online to avoid antagonizing the retail brands, which could consider it a form of competition. But in the face of all the efforts of the latter to develop their private labels, the brands have successfully taken the step (Lego, L'Oréal...). Thanks to this close relationship, brands may not only capture more margin, but also study and exploit purchasing behavior and develop with their customers a relationship, an affinity or even a long-lasting preference that generates loyalty.
The expressed need and potential for personalization also gives brands a clear advantage. Nutella, M&Ms, Coca-Cola... a number of brands offer product personalization, even minimal (first name on the packaging for example), which appeals to consumers. This flexibility is currently unthinkable in a supermarket shelf.
Today, few retailers have really thought about what personalization means in their stores and few are confident in their operational capabilities to build a truly personalized experience.
The fluidity of the journey is finally becoming an imperative. The most successful retailers are developing personalization to create shopping experiences that are simple, fast, intuitive and unconstrained, regardless of the touchpoint.
What are the priority actions for the players in the retail sector?
#1 - PERFORMING A POST-CRISIS REVIEW OF THE PHYSICAL DISTRIBUTION OF THE PRODUCT
This involves understanding which physical locations have been particularly affected and how to recreate customer desire and flows.
To remain competitive, retailers must constantly optimize the economic and performance indicators of their stores by simplifying, eliminating and automating all routine tasks.
Shops and businesses are faced with increased customer service and experience requirements, requiring more customer time at the physical point of sale and better trained contact personnel to serve a highly digitized and more knowledgeable customer than ever before.
#2 - INTENSIFYING THE PERFORMANCE ON CUSTOMER-CENTRICITY
Four virtuous approaches must be implemented to succeed in this challenge and differentiate from the competition:
Addressing the issue transversally to all functions of the company;
Develop a customer-centric strategy based primarily on the expectations and needs of the clients;
Building a customer-oriented logistics ecosystem, investing in new logistics capacities (directly or in partnership);
Be supported by a transition plan that encourages and enables the organization to test, learn and adjust quickly.
#3 - DELIVERING REAL IN-STORE CUSTOMER EXPERIENCES
Distributors and brands must focus on creating true end-to-end, all-encompassing customer experiences. The removal of irritants at each touchpoint is necessary but not sufficient. It is also a question of questioning their willingness and ability to personalize offers and customer journeys. There are many opportunities for progress, for example by increasing its level of service through the implementation of useful and effective partnerships (supply chain, marketplaces co-branding...), the development of micro-targeted and personalized communication, and the acceleration in the use of data to propose recommendations to the customer in real time.
The impact of the Covid crisis on the retail and mass consumption sectors
The expectations and requirements of customers have changed again as a result of the striking experience of the health crisis.
The customer is even more health-oriented
An increasing growth of "healthy" products (fresh vegetables, eggs, dairy products) was noted as well as a rediscovery of homemade products. The feeling of wanting to consume locally and nationally whenever possible.
He is concerned about his personal safety
While shopping, the hygiene and cleanliness of the points of sale will be a permanent requirement of the customers.
He has become more uncertain and more focused on the essentials
Faced with the income uncertainty and the doubt about the future, the consumer scaled down his spending on leisure activities and realized it was manageable to live without these. It is therefore a question of reconsidering the quality/price ratio or more precisely the value offered.
During the periods of confinement, attachments to physical shops and retention may have been disrupted. Consumers moved to outlets and brands offering proximity, product availability, ease of use, and safety conditions. This tends to structure new consumption behaviors in stores:
The proliferation of customer-centric experiences is changing the purpose of the physical sales outlet.
Retailers are constantly struggling to meet the customer-centric demands in terms of supply chain and back office operations.
Physical commerce must reinvent itself with the constraints of social distancing.
This involves being able to prove that the value and supply chain is totally safe in terms of health and safety. In terms of technology, contactless is set to develop. To order, choose and pay.
Retailers need to use new solutions to ramp up on e-commerce and their ability to deliver to the home. Partnerships need to be created, with service providers providing the last mile, from warehouses in the city.
This trend must question retailers about the relevance, viability and sustainability of their physical points of sale. Building truly unique point-of-sale experiences will become even more essential to generate traffic, stimulate cross-channel shopping and increase profitability.
The crisis has also highlighted the need to develop the versatility, interoperability and flexibility of operational teams to deploy staff across a wider range of activities.
Case studies
L’Oreal Travel Retail
Hodler
Système U
Biocoop
