If studies are to be believed, it’s not intrinsic to the nature of brick-and-mortar. Consumers in fact are more likely to be satisfied if they shop with a combination of online and in-store – compared to doing either alone. Grocery store openings actually increased by a whopping 29.4% in 2018, as the industry continued a decade long revenue growth rate of 4.5%.
If so many retailers are failing, how are grocers successfully bucking the trend? The answer is they’re going small.
While grocery chains added 17 million square feet of space last year, stores have actually been shrinking to 20% of their original size. Following the explosion of small discount grocers like Aldi, traditional grocers like Publix and Kroger have begun shifting from their traditional store sizes (50,000 to 65,000 square feet), to “small-format” stores half the size or less. Even Target (defined as a larger “club-size” chain) has found success with small-format stores, with plans to launch roughly 30 nationwide by 2020.
The reason is millennials like convenience. Convenience store shopping – which averaged 4 minutes per trip – grew by 2.2% to $242 billion in sales, as millennials increased their preference for quick items like grab-and-go snacks and meal kits (Blue Apron, Hello Fresh etc.), and convenience services like curbside pickup. With the march for the cashierless checkout made inevitable by Amazon Go, the convenience factor of grocery shopping is only expected to increase.
However convenience isn’t purely size based. In the age of the Amazon, consumers not only want speed, but also near infinite choice selection and information.
Managing a large inventory while minimizing store footprint is a difficult challenge. Common Sense Robotics hopes to provide a solution by using their robot-powered micro-fulfillment centers to enable grocery delivery and pickup orders in under an hour, even in dense urban areas. In China, Alibaba’s retail chain Hema doubles as a warehouse, with employees fulfilling online orders off floor, while shoppers browse the shelves.
Kroger is tackling digital convenience through a “guided shopping” partnership with Microsoft, where shoppers “scan in” and their phones and lead them to items on their shopping list. EDGE smart shelf technology provides real time information, such as allergens and special deals, on every product. Walmart’s IRL store processes 1.6 terabytes of data per second, as it continuously ensures products are stocked, and takes inventory of what’s being purchased.
The future of retail thus isn’t one of physical vs digital, it’s one of physical and digital. By harnessing the power of technology and shopper preferences, retail can save itself by becoming faster, more targeted, and more efficient.
Online and offline purchase behaviors will sync to one user profile, allowing retailers to provide real-time information, coupons, and recommendation to shoppers based on previous purchases. A shopper who donated to an environmental non-profits will see information on a product’s sustainability pop up on the shelf as they pass. Those on a specific diet will be guided to popular items purchased by others. Retail chains will maximize their space by doubling as micro-fulfilment centers for and cashierless checkout will allow rushed shoppers to shop on their mobile devices and pickup their baskets outside stores without ever having to check out.