Seize the Day, Grocery Retailers! Here’s How to Adapt and Compete Amid Change
Grocery retailers are just emerging from the rubble of recent industry-disrupting events. New forms of competition (online, click and collect, home delivery, and meal kits) and new entrants to the market (Amazon, Lidl, and Aldi) have blown the status quo to smithereens. The factors that drive store traffic, increase sales, and swell basket size have all been shuffled up, and nothing can be taken for granted.
But now that you have a sense of the magnitude of change pulsating through the grocery landscape, it’s time to take stock of your merchandising, operations, finance, and succession strategies. If you assess what’s working and what needs to be leveraged, improved, or altogether scrapped from your tactical plans, you can get firmer competitive footing and potentially see favorable results, even amid the uncertainty.
Here’s a high-level checklist to help get an idea of where your grocery business stands today and what adjustments you might make to better compete tomorrow.
Many national and state-based grocer trade groups and associations have lauded the final tax reform package as beneficial to grocers and to the retail industry in general. Lower tax rates are available, no matter what legal entity structure you currently operate as, and the favorable depreciation and full expensing provisions will likely invite reinvestment in your store and help reduce your overall tax bill. Quantify the impact that the new law will have on your business, and look for ways to take full advantage of its generous provisions.
Promotions and store events
Review your sales and loyalty card data and identify peaks and valleys in the last year, then match them up with the promotions and store events that coincided with the ups and downs. What products were you featuring? Were there truckload sales, in-store events, samples, BOGO offers, or holiday promotions that drew customers in — or that failed to?
Tie traffic increases and decreases to specific actions or programs and measure how they ultimately translated into sales, or to an increase or drop in market-basket-per-customer. From there, determine whether these programs should continue, be changed, or eliminated so that you can properly use your store’s resources to get the most value for your efforts. In short, you need to know what gives your customers a compelling reason to get in a car, drive past other stores, and shop at yours.
Do you know how you compare to your competitors when it comes to customer service? What do your social media platforms tell you? How often do you solicit feedback from your customers on how you can improve?
Satisfying your customers should be a top priority. Outstanding customer service will not only distinguish you from other stores, it will also help mitigate the impact of your online competitors (e.g., Amazon, meal kit retailers), who are trying mightily to sap sales from traditional brick-and-mortar stores. Taking time to solicit, analyze, and respond to customer feedback can help set you apart in both the tangible and virtual realms.
Great customer service also plays an important role in loss prevention. Thieves dislike being noticed, therefore, store associates who engage customers as they enter the store or a department play a lead role in mitigating theft.
In an industry with razor-thin margins, controlling costs can play a key role in enhancing profitability. Looking at comparable income statements from year to year on a line-by-line basis can help determine which costs have either been adeptly controlled or could be further tamped down. While certain costs are bound to rise each year, you should at least understand the reason why and see if there’s anything you can do to regain control, such as renegotiate a contract, eliminate certain expenses, change a provider, or implement other mitigating measures. And though this is certainly helpful as a year-to-year exercise, it’s even better done on a monthly or quarterly basis.
In-store training programs and onboarding processes for new associates are the linchpin of retail business success. Your people need constant training in customer service, product knowledge, operational workflow, and business systems if they are to interact with your customers capably, courteously, and professionally. In my experience, many grocery store problems can be traced back to a lack of appropriate staff training.
Take a long, hard look at your employee training programs and formats. Is your course content accurate, complete, easy to understand, hands-on, and memorable? Are you cross-training among departments? Are you teaching your people that problems are universal to the store, not isolated within departments, and that each person has responsibility for addressing them? Are you empowering your people to take action and solve issues, and providing the information, resources, and authority to do so?
New products and trends
Grocery retailers should constantly evaluate the market and stay abreast of new products, services, and trends in the industry, and what your competition is doing to take advantage of them. Programs such as click and collect, home delivery, and online ordering have exploded across the retail landscape. Increased offerings with prepared food, expanded ethnic sections, meal kits, in-store restaurants, and wider organic and natural sections have become very popular, too. If you don’t already offer your customers these options, it’s time to get in on the action. Keep up with these and other evolving trends by attending national and state-based grocery and food association events; they can help clue you in on the latest in grocery innovations and customer preferences and demands.
Many industry analysts would have you believe that traditional brick-and-mortar stores will be extinct in the very near future and that consumers will be ordering all of their groceries and other goods online. I (and plenty of others) believe retail grocery stores are here to stay — but you will have to rethink your strategies, change, and adapt to create a new and enticing experience for your customers. Those who embrace the changes, in my opinion, will survive the industry upheaval.
Some adjustments will call for you to enhance your “fresh” and “prepared” departments, offer more convenience options (such as meal kits and other meal solutions), and provide more in-store services and programs. These concepts will have an impact on your store footprint.
Don’t become “store blind” by walking past the same boring displays, merchandising, and areas that you know could be better. Make your store fun and exciting to shop by incorporating light, color, movement, and great attention-grabbing signage.
Capital expenditure planning
Retailers generally plan for capital expenditures in the fall, but you should conduct an ongoing assessment of your equipment needs, structural improvement requirements, new technology upgrades, and other items that can improve store operations, efficiency, image, and sales. Be careful to fully evaluate the cost-benefit of each capital expenditure and judiciously plan for its procurement. The final tax reform legislation includes full expensing provisions, so now there’s even more incentive to make these investments.
Be careful to fully evaluate the cost-benefit of each capital expenditure and judiciously plan for its procurement. While Congress continues to address the “retail glitch” on the deductibility of certain improvements, the final tax reform legislation includes full expensing provisions on other types of property, so there’s still plenty of incentive to make these investments.
It’s never too early to plan for changes in ownership and leadership, but far too few retailers pay attention to this critical facet of the business; most put it off and risk the serious consequences of an unplanned transition. In the cases of family-owned businesses, the risks include deep damage to parental and sibling relationships. Planning ahead for these events can enable a smooth transition and deliver favorable financial results for all parties when the legal, financial, and operational pieces are in place. You need to have meaningful conversations about business ownership on a frequent basis, ensure the proper documents and structures are in place, and devise a plan for a variety of scenarios and contingencies.
How we can help
Grocery retailers need to understand that change is here and it’s occurring at an increasingly high rate. CLA’s grocery retail industry professionals can help you adapt and stay competitive with customized operational and financial strategies.