Three former top-level executives from the grocery and drug store channels participated in the “Retail Unplugged—The View From a Step Away” panel at the Grocery Manufacturers Association (GMA) Leadership Forum at The Greenbrier in White Sulphur Springs, West Virginia, in September.
These executives, since they have indeed stepped away from their former roles, were able to speak candidly about today’s retailing environment with moderator Thom Blischok, chairman and CEO of The Dialogic Group LLC and global strategic growth advisor to Nielsen.
The panelists were Justin Dye, former chief administration officer for Albertsons Cos.; Robert A. “Bob” Mariano, former chairman, president and CEO of Roundy’s Inc.; and Gregory D. Wasson, former CEO of Walgreens Boots Alliance and co-founder and president of Wasson Enterprise.
Blischok led the panelists through a series of questions about the world of food retailing in 2018. Following are excerpts from the panelists’ responses.
Your perspective on industry disruption?
Dye: I think there was a fairly large sonic boom with Amazon buying Whole Foods and getting some brick-and-mortar capabilities and, more importantly, getting the ability to understand the fresh supply chain and delivery within the four walls to customers…I think you are going to see an arms race between Amazon and Walmart. You are clearly going to see the folks that have really good return on investment capital and growth with the likes of Aldi and Lidl. Then you have the traditional full-service supermarkets. I actually think there is a lot of upside; I’m optimistic about what those food retailers are going to do.
I think we’re going to see more change and more innovation in the next five years than we’ve seen in the last 20 years at retail. In-store entertainment, in-store content, in-store service…it’s being forced upon the industry. There are going to be winners and there are going to be losers. We’ll find out who the courageous are, who the most aggressive folks are. I think the winners are going to have good balance sheets and they’re going to have a clear, differentiated strategy.
You’re also going to see them tinker with new models. They’re not going to be afraid to fail and (they’ll) try different digital plays, different channels to market. I think there’s going to be a lot more innovation in retail going forward, and I think that’s an opportunity for the CPG players.
The last piece, I would say, is you’re certainly going to see more consolidation, and there is going to be more intention, more thought and a lot more capital deployed to streamline the supply chains.
I think it’s going to be really fun to watch this.
Are national grocers more impacted by disruption than regional?
Dye: National supermarkets have a lot of intense pressure today. Margins are down—everyone is making price investments. Do I think that changes? No. Do I think it is amplified with what’s happened (with Amazon buying Whole Foods)? I do. But I think also it’s going to force innovation around omnichannel. Click-and-collect, delivery as well as in-store (pickup). And I think it’s going to be interesting to see how people choose strategy around what they think they’re good at and what they’re going to stand for, who they’re going to partner with.
How about disruption in the regional grocery channel?
Mariano: The regional is not immune at all to what’s going on nationally. The Amazon/Whole Foods effect will be felt in regions…
But regionals tend to be closer to the customer, and they have differentiated merchandising, branding already, simply because they’ve run into Walmart, Aldi, etc., and have had to distinguish themselves.
On the non-perishable side of the store, they’ve got critical decisions to make in terms of size of store, allocation of space, who they work with in order to differentiate themselves because they clearly will use own brand (products) as part of their strategy in order to differentiate their stores in their region. And take advantage of, as we did at Roundy’s, the local supplier chain as well. Those people who had good local brands, good regional brands, had made very good relationships with those manufacturers and developed plans over the long term to make sure they differentiated for their consumers and owned that customer with brands and services that are unique to their store so that that’s where they want to shop.
Is there disruption in the drug channel?
Wasson: I think every industry is being disrupted right now. Technology, I think, is what’s causing that disruption. I sit on a telecom board, a large bank board, a large health insurance board as well as coming from this industry. Every industry is being disrupted, transformed, incredibly so, and every business is experiencing what all of us in this room are. So with that, I agree with Justin—the next five, 10 years probably will see some of the most incredible, exciting opportunities within this industry as far as innovation than we’ve probably seen in the last 20 years.
…you’re going to continue to see the drugstore industry advance over the community pharmacy, replacing health care. You’re going to continue to see a select offering of consumables, fresh food. You’re going to see them moving more and more into health and wellness…I think you’ll see in the drug store industry click-and-collect quite a bit because of the convenience we already have, being right there on the corners. And I think you’ll see everybody trying to figure out some kind of home delivery.
What should a grocer’s strategy look like today?
Dye: If I’m a food retailer, what I’m thinking about first is the shopper, the consumer, and I want to understand firsthand their changing habits/behaviors, what they are buying, how often they’re buying, what’s the experience, what they are looking for. So I’m spending a lot of time doubling down my efforts of really understanding the customer, doing focus groups, doing shop-alongs firsthand. I’m thinking about what my strengths and weaknesses are, and I’m thinking about market share and density. I’m going to think about where can I win, what regions can I win, what categories can I win and which ones do I not think I’m going to win and can I cut bait and monetize it, sell it, etc.
I’m thinking about the size of my boxes. I would like to tinker and toy with varying size of box, depending on center store, fresh, what I want to do with labor, what part of the country.
I would have a series of long-term projects I was working on. I would certainly be thinking about my real estate strategy…better supply chain planning, forecasting, cutting shipments out. I think a lot of folks are picking strategies around trying to get their cost structures right so they can invest in the things they can win at.
Where is the real growth in grocery today?
Mariano: Let’s not be at all confused; when you run up the chart of the different competitors, there is one thing all of us share in common—we are all trying to get more trips from the customer. To me, why (Amazon) wants food is they want the trips for food because that gives them more to add to their subscription model.
As a regional operator, fresh is the most important part. We want customers to come in and buy fresh every single day, maybe more than once a day. The only way you can do that is have offerings for breakfast, lunch and dinner, snacks in between, as well as the products they’re looking for to be made for tonight. So whether they want to dine in, they want to dine out or they actually want to cook the product for themselves, you have to be a solution for all those. So you really want to get full right in the middle of when that customer starts thinking what am I going to do for X meal tonight, they’re coming to my store. And you have to build up the competencies and relationships with providers to provide those goods and services at a very high level. It’s not just sliding in a little snack bar; it’s about food prepared at a very high-quality and nutritious level for the customer. You have to have a lot of points of differentiation within that fresh side, and you’ve got to communicate it to the customer on a day-in, day-out basis. This is part of what your brand identity is—this is who we are, this is how we go to market. We’re part of your community, part of your wellness, and make sure that’s done every single day.
Also, you’ve got to build an economic model that affords good pricing but also the right kind of help available who are trained properly to deliver a phenomenal experience for them each and every time. And behind the scenes, spend very wisely on IT and efficiency projects and/or systems to glean out costs to be able to plow back into the business.
What are some ways to drive growth through marketing?
Wasson: There is always an opportunity for marketing dollars to be spent more efficiently. At my former company (Walgreens), 90 percent of the dollars we spent were pretty much on our Sunday print circular. That is a heck of a tool, but I think there are tremendous new technologies that are coming forth that will help us make those dollars, in-store, more efficient. I’m looking at some technologies that are just incredible as far as smart cooler doors and on-shelf technology that will really help determine whether a display is on the floor or not and how efficient it is and so forth… Point-of-sale technology is incredible as far as advancements we’re seeing.
And we need to be driving efficiencies through the supply chain by working together to deliver some additional dollars that can be spent to drive sales. I think all of us need to be embracing a lot of the new technologies and the solutions that are out there.
Talk more about efficiency to drive growth.
Dye: I think the industry—and I’m lecturing myself—has got to move faster. You’ve got a new array of competitors and they move quickly, they get in conference rooms on a whiteboard and they brainstorm new ideas and they try them very, very quickly. I think the industry needs a wakeup call. We need to behave in certain circumstances that way—trial and error, supply chain, new customer experiences, new store designs, etc. I think the speed, the game has changed, and it’s encumbent upon the industry to change and move quicker. Try things; it’s OK to try small projects and fail.
Also, I think there’s a ton of opportunity in getting the top sales person and their support people and the top merchants and retailers—starting at that level—and really starting to lay out how are we going to go attack the cost structure and the supply chain. And then efficiencies—how do we divide the pool of profit to go invest in the business and drive it? Right now what I see principally is you get the head of supply chain from the manufacturer, we have a designee on the retailer side to go work on supply chain efficiencies and, no offense, it works, but it’s incremental. We need to be talking about how do we…go directly to the warehouse? How do we go directly to the store? How do we plan runs? How do we optimize advertising better so we know what the product flow is going to be? There are hundreds of millions of dollars of cost to be taken out that can be put right back into creating value for the consumer.
Where do analytics, including predictive analytics, fit in?
Mariano: We have to be able to make quicker decisions, smarter decisions and informed decisions. I think we talk at a very high level, but we’ve got to get that information to people who sit at desks or are in stores who can affect those judgments right then and there as opposed to some type of headquarters situation. I always remember the United States flag story from Walmart when they saw after 9-11 that the U.S. flags were selling and someone said, “we’d better order a lot of flags.” It all seems very logical right now, but the point was it was called out somewhere; that piece of information, a factual thing (impacted the buying). We’ve got to get the information—usable information—not data. We’ve got a lot of stuff, but it has to be distilled, it’s got to be actionable, I’ve got to be able to measure it, I’ve got to know when I did it right and, if I didn’t do it right, what do I need to change?
Honestly, I think that’s where collaboration between our trading partners should occur. We bought it for X, we sold it for Y; did we really make Z? We have to have that level of honesty and transparency in the numbers to know what the profit and loss is in the business we do together. If we’re not working toward that, and I mean precise—not just after gross but the expenses, too. If there are a lot of add-backs floating around in the office, an accounting clerk spending 20 minutes on the phone with their controller about bad invoices, this costs. Somewhere along the line, someone pays for that. If we’re allowing that to continue, that’s really a problem. We’ve got to cut through the nonsense and look at facts together and make decisions to move the business forward and know that after a week or two of the changes we make we know we’re making the right decision—we can see it in the information, we can see it in the behavior of the customer. If not, we have to be suspect whether we’re on the right path.
Being the inventor of Mariano’s, how do you think about digital going forward?
Mariano: One of the reasons we merged (with Kroger Co.) was so we could have what they had done with click and collect. It was one of the critical reasons why I thought the merger made a tremendous amount of sense, because it would take us a fair amount of time to achieve that knowledge. I would tell you that is one of the reasons why there will be consolidation in our business…the best thing for an organization may be to merge with a larger operator to avail themselves of this technology experience so they can apply it for their customers.
What can a manufacturer do to align better with the retailer?
Wasson: One would be, which we talked about earlier, figuring out how we seamlessly work together to drive efficiencies in the supply chain.
I think the question is how we drive innovation faster. How do we innovate and how do you help us with that? I’m kind of a simple guy, and I still truly believe that the future retail world will be about three things.
First is the experience within the store. Humans are social beings, so people still want to go in the store.
Second, we need innovative products and services. We need much more innovation in products, and I think retailers are going to lean in into innovative services, too. Certainly the drug channel is. Flu shots are a great example. Seven or eight years ago pharmacists weren’t even certified to give shots; today Walgreens is second to the U.S. government in administering flu shots. There may be areas we can collaborate there on—what kinds of services?
Third would be helping us as we move toward a more omnichannel solution—how do you elevate your own organizations to help us with that? I will say that most retailers, certainly my former company, we’re beginning to move digital—the buyers, the procurement division and marketing. In fact, I took my chief digital officer and made her chief marketing officer and combined the two before I left. So I think retailers are headed there, and I think it may be an opportunity to look at your own organizations and figure out how you can come together to support that same focus.
How should manufacturers think about merchandising going forward?
Mariano: That’s the perennial conflict for me—a clean store look and feel for the customer and having product (prominently displayed). I think the answer is some of both. I don’t think it would be wise to say we’re not going to do any floor merchandising. To the contrary, I think some floor merchandising is extraordinarily effective. On the other hand, clutter is clutter. If I’m going to send X number of shippers into a store, I have to have some idea of what I’m doing to that store in terms of how it will look once they get the shippers on the floor. But at the end of the day, did we sell more stuff? If we didn’t sell any more stuff and we’re fussing with these things all over the floor, then you have to ask yourself the question why are we doing that? We’re both in the business of selling more stuff than we did before, and it’s important to develop ideas to sell more stuff…In our business we love to make it complicated, but you know, sometimes it’s not as complicated as we like to make it. It’s still to put product in front of the customer and put a decent price on it and make it well merchandised and attractive and they want to put it in their cart.
What are your recommendations to manufacturers to succeed going forward?
Wasson: Relentless focus on the customer. We all say that and we probably all think we do it, but I don’t believe we do. Really, really, really focus on the customer to figure out what they want, where they want it and how they want it…This makes me sound like Yogi Berra, but we need to innovate how we innovate. We’ve got to innovate quickly; the industry is changing at warp speed. I am a couple of years out of it and you’re out there dealing with live ammunition; you know how fast it’s changing. I think really figuring out how to be more innovative is vital. Pilot, try everything—that’s absolutely critical.
Mariano: Sit down with the retailer and make a plan. Agree on what we’re trying to do; have a plan identified with objectives on what we want to complete and when we want to do it. And make sure the results aren’t something that is going to come in the next year but in the next month.
There has to be more intense interaction. If my category managers don’t have time to see and visit, time to plan, then we have to take work away from those category managers so they have time to plan with manufacturing partners.
And then we need to make sure we’re locked and loaded with the (grocery) operators so that the execution, which is the other 90 percent of what we’re talking about here, is immaculate.
…One of the most important things I could suggest is joint incentive pay goals. Your people and our people, their incentive should be based on similar goals so that we’re all pulling the same direction. If their bonus is based on cases and our bonus is based on EBITDA, then we’re measuring things differently. And when we’re talking about folks’ paychecks, it makes a difference.
Dye: Relationships still matter in this industry; people do business with people they know and trust. I think most of you do this very well.
…I think there’s a lot of work to be done on the supply chain side, really taking costs out. Create a profit pool that you and the retailer can share to invest back in the business to drive growth and units and tonnage and sales.
And there needs to be real work on the digital side…I think you’re going to see more digital content in-store telling stories about local products, about your products, creating a real experience so people want to come and gather at the store. So help them with that, invest in it. I think in the next five years there is going to be a ton of innovation and it’s going to be really, really exciting both in your world and on the retailer side.